Repeated Games with Observation Costs

Eiichi Miyagawa, Yasuyuki Miyahara and Tadashi Sekiguchi
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Yasuyuki Miyahara: Graduate School of Business Administration, Kobe University

No 565, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper analyzes repeated games in which it is possible for players to observe the other players' past actions without noise but it is costly. One's observation decision itself is not observable to the other players, and this private nature of monitoring activity makes it difficult to give the players proper incentives to monitor each other. We provide a sufficient condition for a feasible payoff vector to be approximated by a sequential equilibrium when the observation costs are sufficiently small. We then show that this result generates an approximate Folk Theorem for a wide class of repeated games with observation costs. The Folk Theorem holds for a variant of prisoners' dilemma, partnership games, and any games in which the players have an ability to "burn" small amounts of thier own payoffs.

Keywords: repeated games; private monitoring; costly monitoring; Folk Theorem. (search for similar items in EconPapers)
JEL-codes: C72 C73 D43 D82 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2003-01
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:565

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