We study infinite-horizon monetary economies characterized by trading frictions that originate from random pairwise meetings, and commitment and enforcement limitations. We prove that introducing occasional trade in "centralized markets" opens the door to an informal enforcement scheme that sustains a non-monetary efficient allocation. All is required is that trading partners' be patient and their actions be observable. We then present a matching environment in which trade may occur in large markets and yet agents' trading paths cross at most once. This allows the construction of models in which infinitely-lived agents trade in competitive markets where money plays an essential role.

We study the Lagos and Wright (2005) model of monetary exchange in the laboratory. With a finite population of sufficiently patient agents, this model has a unique monetary equilibrium and a continuum of non-monetary gift exchange equilibria, some of which Pareto dominate the monetary equilibrium. We find that subjects avoid the gift exchange equilibria in favor of the monetary equilibrium. We also study versions of the model without money where all equilibria involve non-monetary gift exchange. We find that welfare is higher in the model with money than without money, suggesting that money plays a role as an efficiency enhancing coordination device. ( JEL C92, D12, E40, Z13)

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Pervasive overbidding represents a well-documented feature of all-pay auctions. Aggregate bids exceed Nash predictions in laboratory experiments, and individuals often submit bids that guarantee negative profits. This paper examines three factors that may reduce pervasive overbidding: (a) repetition (experience), (b) reputation (strangers vs. partners) and (c) active participation. We find that aggregate over-dissipation diminishes but is not eliminated with repetition, and that repetition, in conjunction with active participation generates bids consistent with the static Nash predictions.

Bilateral matching, Frictions, Anonymous trading, Spatial interactions, C78, E00,

A growing literature in experimental economics examines the conditions under which cooperation can be sustained in social-dilemma settings. In particular, several recent studies contrast cooperation levels in games in which the number of decision rounds is probabilistic to games in which the number of decision rounds is finite. We contribute to this literature by contrasting the evolution of cooperation in probabilistically and finitely repeated linear voluntary-contribution public-goods games (VCM). Consistent with past results, ceteris paribus, cooperation is found to increase in the marginal value of the public good. Additionally, as the number of decision sequences increases, there is a pronounced decrease in cooperation in the final round of finite sequences compared to those with a probabilistic end round. We do not, however, find consistent evidence that overall cooperation rates are affected by whether the number of decision rounds is finite or determined probabilistically.

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