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Building Routines: Learning, Cooperation, and the Dynamics of Incomplete Relational Contracts

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  • Sylvain Chassang

Abstract

This paper studies how agents with conflicting interests learn to cooperate when the details of cooperation are not common knowledge. It considers a repeated game in which one player has incomplete information about when and how her partner can provide benefits. Initially, monitoring is imperfect and cooperation requires inefficient punishment. As the players' common history grows, the uninformed player can learn to monitor her partner's actions, which allows players to establish more efficient cooperative routines. Because revealing information is costly, it may be optimal not to reveal all the existing information, and efficient equilibria can be path-dependent. (JEL C73, D82, D83, D86)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.1.448
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File URL: http://www.aeaweb.org/aer/data/mar2010/20080226_app.pdf
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 1 (March)
Pages: 448-65

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:1:p:448-65

Note: DOI: 10.1257/aer.100.1.448
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References

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  1. Watson, Joel, 2002. "Starting Small and Commitment," Games and Economic Behavior, Elsevier, vol. 38(1), pages 176-199, January.
  2. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2004. "Collusion and Price Rigidity," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 317-349.
  3. Alonso, Ricardo & Matouschek, Niko, 2005. "Relational Delegation," CEPR Discussion Papers 4870, C.E.P.R. Discussion Papers.
  4. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  5. Shalev Jonathan, 1994. "Nonzero-Sum Two-Person Repeated Games with Incomplete Information and Known-Own Payoffs," Games and Economic Behavior, Elsevier, vol. 7(2), pages 246-259, September.
  6. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  7. Thomas Wiseman, 2005. "A Partial Folk Theorem for Games with Unknown Payoff Distributions," Econometrica, Econometric Society, vol. 73(2), pages 629-645, 03.
  8. Blume, Andreas & Franco, April Mitchell, 2007. "Decentralized learning from failure," Journal of Economic Theory, Elsevier, vol. 133(1), pages 504-523, March.
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Citations

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Cited by:
  1. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.
  2. Joseph E. Harrington, Jr. & Wei Zhao, 2012. "Signaling and Tacit Collusion in an Infinitely Repeated Prisoners' Dilemma," Economics Working Paper Archive 587, The Johns Hopkins University,Department of Economics.
  3. David McAdams, 2011. "Performance and Turnover in a Stochastic Partnership," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 107-42, November.
  4. Wagner, Alexander F, 2011. "Relational contracts when the agent's productivity inside the relationship is correlated with outside opportunities," CEPR Discussion Papers 8378, C.E.P.R. Discussion Papers.
  5. Andreas Blume, 2011. "Dynamic Coordination Via Organizational Routines," Working Papers 439, University of Pittsburgh, Department of Economics, revised Jan 2011.
  6. Sylvain Rossiaud, 2014. "Opening the upstream oil industry to private companies," Working Papers halshs-00960681, HAL.
  7. Susan Helper & Rebecca Henderson, 2014. "Management Practices, Relational Contracts, and the Decline of General Motors," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 49-72, Winter.
  8. Daron Acemoglu & Matthew O. Jackson, 2011. "History, Expectations, and Leadership in the Evolution of Social Norms," NBER Working Papers 17066, National Bureau of Economic Research, Inc.
  9. James M. Malcomson, 2012. "Relational Incentive Contracts
    [The Handbook of Organizational Economics]
    ," Introductory Chapters, Princeton University Press.
  10. Yuichi Yamamoto, 2013. "Individual Learning and Cooperation in Noisy Repeated Games," PIER Working Paper Archive 13-038, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  11. Daniel Ladley & Ian Wilkinson & Louise Young, 2013. "The Evolution Of Cooperation In Business: Individual Vs. Group Incentives," Discussion Papers in Economics 13/14, Department of Economics, University of Leicester.
  12. Simon Board, 2011. "Relational Contracts and the Value of Loyalty," American Economic Review, American Economic Association, vol. 101(7), pages 3349-67, December.
  13. Heidhues, Paul & Blume, Andreas & Franco, April, 2013. "Dynamic Coordination via Organizational Routines," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80027, Verein für Socialpolitik / German Economic Association.
  14. Harrington, Joseph E. & Zhao, Wei, 2012. "Signaling and tacit collusion in an infinitely repeated Prisoners’ Dilemma," Mathematical Social Sciences, Elsevier, vol. 64(3), pages 277-289.

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