Essays on Information Contagion and Media of Exchange

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McArthur, David
Rust, John
CHAPTER 1: INFORMATION CONTAGION In social media, information spreads like a contagion from person to person. When many pieces of information are spreading and competing in the space of social media messages, their propagation rates become very unequal. This is because contagion creates a positive feedback which amplifies small, random differences in prevalence. A framework for modeling social media is developed that suggests how to infer the communication choices of social media participants from the observed heavy-tailed count distribution of messages containing different pieces of information. In a Monte Carlo simulation where agents with rational expectations make individually optimal communication choices, the feedback effect is only partially mitigated. Even with fully rational behavior, information that no-one has an especially high propensity to pass along can "go viral". CHAPTER 2: SEARCH AND BARGAINING WITH PLASTIC: MONEY AND CHARGE CARDS AS COMPETING MEDIA OF EXCHANGE Charge cards are introduced into the Lagos-Wright money search model as an alternative medium of exchange competing with money. I explore why cards and money may coexist, and examine the implications of intermediated exchange for monetary policy. Charge cards lower the social cost of inflation because they overcome the hold up problem with money that otherwise results in too little exchange. Some inflation can even be beneficial if a higher cost of holding money pushes agents to become cardholders. Moreover, higher nominal interest rates help card companies set higher spending limits, which can also increase the level of exchange and improve welfare.