Academic Commons

Reports

The folk theorem for repeated games with observation costs

Miyagawa, Eiichi; Miyahara, Yasuyuki; Sekiguchi, Tadashi

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.

Subjects

Files

More About This Work

Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 0405-12
Published Here
March 25, 2011

Notes

December 2004

Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.