Are optimal punishments always optimal?

Luca Colombo (), Paola Labrecciosa () and Luca Lambertini ()
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Luca Colombo: Middlesex University, London, UK and University of Bologna, Italy
Paola Labrecciosa: Middlesex University, London, UK and University of Bologna, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: The seminal paper by Abreu (1986) is revisited to reassess the optimality of one-shot stick-and-carrot punishments. It is shown that there are admissible conditions under which the use of grim trigger strategies with an infinite Nash reversion is more efficient than implementing Abreu's penal code in stabilizing collusion.

Keywords: optimal penal code; grim trigger strategy; cartel stability (search for similar items in EconPapers)
JEL-codes: C73 (search for similar items in EconPapers)
Date: 2008-01
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