Noise-Tolerant Community Enforcement and the Strength of Small Stakes

Drew Fudenberg and Alexander Wolitzky

American Economic Review: Insights, 2024, vol. 6, issue 4, 509-25

Abstract: We study community enforcement in a large population with noisy monitoring. We focus on equilibria in the prisoner's dilemma that are coordination proof, meaning that matched partners never play a Pareto-dominated Nash equilibrium in the one-shot game induced by the equilibrium continuation payoffs at their current histories. We show that a noise-tolerant version of contagion strategies is optimal among all coordination-proof equilibria. Welfare under tolerant contagion strategies decreases in the noise level and the gain from defection faster than welfare in a fixed partnership does. Thus, community enforcement has a comparative advantage in supporting "low-stakes" relationships.

JEL-codes: C72 C73 C78 Z13 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aeri.20230617 (application/pdf)
https://www.aeaweb.org/doi/10.1257/aeri.20230617.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aerins:v:6:y:2024:i:4:p:509-25

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aeri.20230617

Access Statistics for this article

American Economic Review: Insights is currently edited by Amy Finkelstein

More articles in American Economic Review: Insights from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().