We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an “intertemporal cooperation game” either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems.
Bigoni, M., Camera, G., & Casari, M. (2018). Partners or strangers? Cooperation, monetary trade, and the choice of scale of interation. ESI Working Paper 18-05. Retrieved from https://digitalcommons.chapman.edu/esi_working_papers/243