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The folk theorem for repeated games with observation costs

Eiichi Miyagawa; Yasuyuki Miyahara; Tadashi Sekiguchi

Title:
The folk theorem for repeated games with observation costs
Author(s):
Miyagawa, Eiichi
Miyahara, Yasuyuki
Sekiguchi, Tadashi
Date:
Type:
Working papers
Department:
Economics
Permanent URL:
Series:
Department of Economics Discussion Papers
Part Number:
0405-12
Publisher:
Department of Economics, Columbia University
Publisher Location:
New York
Abstract:
This paper studies repeated games with private monitoring where players make optimal decisions with respect to costly monitoring activities, just as they do with respect to stage-game actions. We consider the case where each player can observe other players' current-period actions accurately only if he incurs a certain level of disutility. In every period, players decide whether to monitor other players and whom to monitor. We show that the folk theorem holds for any finite stage game that satisfies the standard full dimensionality condition and for any level of observation costs. The theorem also holds under general structures of costless private signals and does not require explicit communication among the players. Therefore, tacit collusion can attain efficient outcomes in general repeated games with private monitoring if perfect private monitoring is merely feasible, however costly it may be.
Subject(s):
Economic theory
Item views:
207
Metadata:
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