An Analysis of a Strategic Market Game Using Gold as Money and Ornament
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In Quint-Shubik (2012), the authors present and solve several models of a simple economy, the idea being to show how to game theoretically model the role of money and financial institutions. In particular, in a chapter entitled Markets with Gold, a simple two-good-plus-gold economy is presented, in which players may use the same gold both as a money and as a durable good (jewelry) which provides a stream of services. At any time, the gold is allowed only to be used for one of these functions.In this thesis we consider a slightly different version of the model. There are now two different kinds of gold a monetary gold and a jewelry gold, with a conversion cost between them. We consider two models one without banking and one with banking. Using the theory of non-linear programming, we solve for Nash equilibrium strategies for these models.