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Efficiency may Improve when Defectors Exist

Takako Fujiwara-Greve (), Masahiro Okuno-Fujiwara () and Nobue Suzuki

No e060, Working Papers from Tokyo Center for Economic Research

Abstract: Voluntarily Separable Repeated Prisoner's Dilemma (Fujiwara-Greve and Okuno-Fujiwara, 2009) has many kinds of equilibria. Focusing on monomorphic and bimorphic equilibria, we show that a bimorphic equilibrium consisting of cooperators and defectors is most efficient, under a mild payoff condition. This is a striking contrast to ordinary repeated Prisoner's Dilemma, where the symmetric efficient payoff is achieved by the symmetric C-trigger equilibrium. Our result indicates that behavioral diversity can be beneficial for the society, when players are free to escape from personalized punishments.

Pages: 34 pages
Date: 2013-10
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-mic
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