Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems

V Bhaskar

Review of Economic Studies, 1998, vol. 65, issue 1, pages 135-49

Abstract: This paper analyses the sustainability of intergenerational transfers in Samuelson's consumption-loan model when agents are imperfectly informed about past events. The authors find that with mild informational constraints, transfers cannot be supported by pure-strategy equilibria. Mixed strategies allow transfers to be sustained even if agents have little information, so that a version of the Folk theorem holds. However, these equilibria are not robust. If each agent's utility function is subjected to a small random perturbation as in Harsanyi (1973), these mixed strategy equilibria unravel, and only the zero-transfer allocation survives as the unique rationalizable outcome. This result is an example of mixed strategy equilibrium of an extensive form game which cannot be purified. Copyright 1998 by The Review of Economic Studies Limited.

Date: 1998
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Working Paper: Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems (1994)
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