High frequency repeated games with costly monitoring

Ehud Lehrer () and Eilon Solan ()
Additional contact information
Ehud Lehrer: Tel Aviv University, INSEAD

Theoretical Economics, 2018, vol. 13, issue 1

Abstract: We study two-player discounted repeated games in which a player cannot monitor the other unless he pays a fixed amount. It is well known that in such a model the folk theorem holds when the monitoring cost is of the order of magnitude of the stage payoff. We analyze high frequency games in which the monitoring cost is small but still significantly higher than the stage payoff. We characterize the limit set of public perfect equilibrium payoffs as the monitoring cost tends to 0. It turns out that this set is typically a strict subset of the set of feasible and individually rational payoffs. In particular, there might be efficient and individually rational payoffs that cannot be sustained in equilibrium. We also make an interesting connection between games with costly monitoring and games played between long-lived and short-lived players. Finally, we show that the limit set of public perfect equilibrium payoffs coincides with the limit set of Nash equilibrium payoffs. This implies that our characterization applies also to sequential equilibria.

Keywords: High frequency repeated games; costly monitoring; Nash equilibrium; public perfect equilibrium; no folk theorem; characterization (search for similar items in EconPapers)
JEL-codes: C72 C73 (search for similar items in EconPapers)
Date: 2018-01-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://econtheory.org/ojs/index.php/te/article/viewFile/20180087/19845/604 (application/pdf)

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:the:publsh:2627

Access Statistics for this article

Theoretical Economics is currently edited by Simon Board, Todd D. Sarver, Juuso Toikka, Rakesh Vohra, Pierre-Olivier Weill

More articles in Theoretical Economics from Econometric Society
Bibliographic data for series maintained by Martin J. Osborne ().