Secondary Currency Acceptance: Experimental Evidence with a Dual Currency Search Model

Motivated by the growing acceptance of electronic cryptocurrencies such as Bitcoin, I examine in a controlled, experimental laboratory setting, the acceptance of a secondary currency when a primary currency already circulates in an economy. The underlying model is an indivisible goods/indivisible money, dual currency search model similar to that in Kiyotaki and Wright (1993) and Craig and Waller (2000). In such models, there are two pure Nash equilibria - total acceptance or total rejection of the secondary currency - and one unstable, mixed equilibrium denoted as partial acceptance. This mixed equilibrium is considered an artifact of the indivisibility of money and goods in the model and is often ignored. I find that when barter between good holders is allowed, the equilibrium tends towards total rejection. Conversely, when barter is prohibited, the equilibrium tends towards total acceptance. However, in both cases, the economies as a whole display partial acceptance of the secondary currency.