YALE DEPARTMENT OF ECONOMICS
WORKING PAPER NO. 26

EVERYONE-A-BANKER OR
THE IDEAL CREDIT ACCEPTANCE GAME:
THEORY AND EVIDENCE

Juergen Huber, Martin Shubik, and Shyam Sunder

August 2007

Is personal credit issued by participants sufficient to operate an economy efficiently, with no outside or government money? Sorin (1995) constructed a strategic market game to prove that this is possible. We conduct an experimental game in which each agent issues her own IOUs and a costless efficient clearinghouse adjusts the exchange rates among them so the markets always clear. The results suggest that if the information system and clearing are so good as to preclude moral hazard, any form of information asymmetry, or need for trust, the economy operates efficiently at any price level without government money. Conversely, perhaps explanations for prevalence of government money should be sought in either the above mentioned frictions or our unwillingness to experiment with innovation.

Keywords: Government and individual money, Efficiency, Experimental gaming

JEL Classification: C73, C91