 The folk theorem for repeated games with observation costsEiichi Miyagawa, Yasuyuki Miyahara and Tadashi Sekiguchi Journal of Economic Theory, 2008, vol. 139, issue 1, 192-221 Abstract: The folk theorem literature has been relaxing the assumption on how much players know about each other's past action. Here we consider a general model where players can "buy" precise information. Every period, each player decides whether to pay a cost to accurately observe the actions chosen by other players in the previous period. When a player does not pay the cost, he obtains only imperfect private signals. Observational decisions are unobservable to others. Known strategies such as trigger strategies do not work since they fail to motivate players to pay for information. This paper shows that the folk theorem holds for any level of observation costs. Unlike existing folk theorems with private monitoring, ours imposes virtually no restriction on the nature of costless imperfect signals. The theorem does not use explicit or costless communication, thereby having implications on antitrust laws that rely on evidence of explicit communication. The main message is that accurate observation alone, however costly, enables efficient cooperation in general repeated games. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:139:y:2008:i:1:p:192-221 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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