We study the coexistence of monetary and credit transactions in a model where exchange is decentralized. Agents belong to different villages which are informationally separated. The frequency of meetings between any two different villages decreases in their geographic distance. The equilibrium mix of monetary and credit transactions is characterized as a function of the frequency of meetings among agents from different villages. Our economy may be interpreted as a medieval economy.
Trade takes place only among a small set of nearby villages via the use of credit.
Monetary trades emerge only after interactions with faraway villages become sufficiently frequent. Even in that case, trades among nearby villages remain non-monetized. A Note on Learning to Bid Walrasian in 2x2 Market Games. There is a large number of agents so that the Walrasian allocation of the underlying exchange economy can be supported by a Nash equilibrium of the game. Instead of being fully rational, consumers myopically imitate bids that were successful in giving a higher payoff for their type in the previous period and they occasionally experiment.