Attaining Efficiency with Imperfect Public Monitoring and Markov Adverse Selection

Research output: Working paper

Abstract

I prove an efficiency result for dynamic games of imperfect public monitoring in which one player’s utility is privately known and evolves according to an irreducible Markov process. Under assumptions about the set of payoffs, patient players are able to attain approximately Pareto efficient payoffs in equilibrium. The public signal must satisfy a “pairwise full rank” condition that is somewhat stronger than the related condition required in the Folk Theorem proved by Fudenberg, Levine, and Maskin (1994). My proof is partially constructive and uses a novel technique to mitigate the impact of private information about utility on continuation payoffs. Under stronger assumptions, the efficiency result partially extends to games in which the private information affects every player’s payoff.
Original languageEnglish (US)
Number of pages48
StatePublished - Nov 12 2012

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