Abstract
The folk theorem of repeated games has established that cooperative behavior can be sustained as an equilibrium in repeated settings. Early papers on private monitoring and a recent paper of Cole and Kocherlakota (Games and Economic Behavior, 53 [2005], 59-72) challenge the robustness of this result by providing examples in which cooperation breaks down when players observe only imperfect private signals about other players' actions, or when attention is restricted to strategies with finite memory. This paper shows that Cole and Kocherlakota's result is an artefact of a further restriction that they impose. We prove that the folk theorem with imperfect public monitoring holds with strategies with finite memory. As a corollary, we establish that the folk theorem extends to environments in which monitoring is close to public, yet private.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1773-1814 |
| Number of pages | 42 |
| Journal | Quarterly Journal of Economics |
| Volume | 124 |
| Issue number | 4 |
| DOIs | |
| State | Published - Nov 2009 |
Funding
∗We would like to thank Olivier Compte, David Levine, George Mailath, and Rakesh Vohra, as well as the seminar participants at the Université de Montréal, UCLA, the University of Michigan, the University of Pennsylvania, and the Conference on Economic Theory and Experimental Economics at Washington University for helpful comments and conversations. Wojciech Olszewski thanks the National Science Foundation for research support (CAREER Award SES-0644930). All remaining errors are ours.
ASJC Scopus subject areas
- Economics and Econometrics