Recursive Methods in Discounted Stochastic Games: An Algorithm for delta Approaching 1 and a Folk Theorem

Johannes Hörner, Takuo Sugaya, Satoru Takahashi and Nicolas Vieille ()
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Takuo Sugaya: Princeton University

No 1742, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We present an algorithm to compute the set of perfect public equilibrium payoffs as the discount factor tends to one for stochastic games with observable states and public (but not necessarily perfect) monitoring when the limiting set of (long-run players') equilibrium payoffs is independent of the state. This is the case, for instance, if the Markov chain induced by any Markov strategy profile is irreducible. We then provide conditions under which a folk theorem obtains: if in each state the joint distribution over the public signal and next period’s state satisfies some rank condition, every feasible payoff vector above the minmax payoff is sustained by a perfect public equilibrium with low discounting.

Keywords: Stochastic; games (search for similar items in EconPapers)
JEL-codes: C72 C73 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-12, Revised 2010-08
New Economics Papers: this item is included in nep-gth
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Published in Econometrics (July 2011), 79(4): 1277-1318

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