The Social Viability of Money

In this book overlapping generations economies are analysed
from a game theoretical point of view and the social
acceptability of consumption allocations is studied in
infinite horizon models of pure exchange economieswith
agents with finite lifetimes who behave cooperatively. The
core of such economies and its relation with competitive
equilibria, both walrasian and monetary and the essential
characteristics of the overlapping generations model are
examined.
The author defines the problem of trust in intertemporal
consumption allocations as a question of belonging or not to
the core of economy and provides a full characterization of
the core allocations for n-goods pure exchange economies
with one agent per generation: a consumption allocation
belongs to the core if and only it is Pareto optimal and
Sequentially Individually Rational. From this it follows
that for one commodity economies no consumption allocation
involving intertemporal transfers can belong to the core of
the economy. In other words, no monetary equilibrium is
socially viable. This result is no longer true for many
goods models. For that case it is demonstrated that there
exist bounds on the real value of equilibrium money
purchases beyond which monetary equilibria are not socially
viableand with many agents in every generation it is shown
that as the economy becomes large and monetary (as well as
IOU) equilibria become eventually excluded from the core of
the economy. These results provide an analytical rationale
for the fact that in most countries fiat money is legal
tender.