Finitely Repeated Prisoners' Dilemma with Small Fines: Penance Contract

Hitoshi Matsushima

No CARF-F-208, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: We investigate the finitely repeated prisoners' dilemma with explicit contractual devices. We show that full collusion can be achieved by incentivizing the players' final period of play with small fines. Our incentivizing modality is the penance contract, by which a player is penalized if (and only if) he deviates from the penance strategy in the final period. We show that using this contractual agreement brings the penance strategy profile into unique subgame perfect equilibrium and achieves full collusion without being overturned by renegotiation.

Pages: 18 pages
Date: 2010-03
New Economics Papers: this item is included in nep-gth and nep-mic
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https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/217.pdf (application/pdf)

Related works:
Journal Article: FINITELY REPEATED PRISONERS' DILEMMA WITH SMALL FINES: THE PENANCE CONTRACT (2012)
Working Paper: Finitely Repeated Prisoners' Dilemma with Small Fines: Penance Contract (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf208

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