The Theory of Money and Financial Institutions: A Summary of a Game Theoretic Approach

22 Pages Posted: 20 Jul 2006

See all articles by Martin Shubik

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: July 2006

Abstract

A game theoretic approach to the theory of money and financial institution is given utilizing both the strategic and coalitional forms for describing the economy. The economy is first modeled as a strategic market game, then the strategic form is used to calculate several cooperative forms that differ from each other in their utilization of money and credit and their treatment of threats. It is shown that there are natural upper and lower bounds to the monetary needs of an economy, but even in the extreme structures the concept of "enough money" can be defined usefully, and for large economies the games obtained from the lower and upper bounds have cores that approach the same limit that is an efficient price system. The role of disequilibrium is then discussed.

Keywords: Money, Prices, Core, Threat, Market game, Strategic market game

JEL Classification: C71, C72, D53, E40

Suggested Citation

Shubik, Martin, The Theory of Money and Financial Institutions: A Summary of a Game Theoretic Approach (July 2006). Cowles Foundation Discussion Paper No. 1572, Available at SSRN: https://ssrn.com/abstract=918472

Martin Shubik (Contact Author)

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm