Community Enforcement with Endogenous Information

Priyodorshi Banerjee
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Priyodorshi Banerjee: Boston University

No 1652, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: We consider cooperative arrangements in a fixed community where agents may change partners over time and where public communication is possible. Public monitoring and exogenous information flows are absent: any player's action in any period is observed only by the agent himself and his partner in that period. We show that cooperation can be sustained as a sequential equilibrium in such an environment if agents are required to make public and simultaneous announcements about their activities even if such announcements are non-verifiable. This result also holds in the presence of small costs of information transmission; however, there may be inefficiencies in such an environment. In the presence of information processing costs, cooperation may be difficult to sustain; however, if there are some exogenous probabilities of a change in the environment, cooperation can be sustained even in the presence of (private and unobservable) costs of gathering information.

Date: 2000-08-01
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