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Community enforcement with observation costs

Yu Awaya ()

Journal of Economic Theory, 2014, vol. 154, issue C, 173-186

Abstract: Takahashi (2010) [12] proves a folk theorem in an environment where a continuum of players are randomly matched in each period to play the prisoner's dilemma with a different partner. A key assumption there is that a player can observe her partner's past play without any cost, while she cannot observe the past play of her partner's past partners, the partners of her partner's past partners, and so on. However, Takahashi's [12] result is not robust to the introduction of an infinitesimal cost to acquire information about partners' past play. In this note, with the help of cheap-talk communication, I prove a folk theorem by constructing an equilibrium strategy that is robust to an infinitesimal cost.

Keywords: Repeated game; Random matching; Community enforcement; Observation cost (search for similar items in EconPapers)
JEL-codes: C72 C73 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jet.2014.09.007

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Handle: RePEc:eee:jetheo:v:154:y:2014:i:c:p:173-186