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Gradual cooperation in the existence of outside options

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  • Furusawa, Taiji
  • Kawakami, Toshikazu

Abstract

The paper shows that efficient cooperation processes exhibit gradualism when each player does not know the likelihood that the other player exercises a stochastically available outside option. Two players, asymmetrically informed on this likelihood, play an infinitely repeated prisoner's dilemma game. Each player is either the high type with the high probability to obtain the outside option or the low type. As time proceeds with neither player exercising the outside option, each player puts more probability on the belief that his partner is the low type, enabling the players to raise cooperation levels in the efficient pooling equilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 68 (2008)
Issue (Month): 2 (November)
Pages: 378-389

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Handle: RePEc:eee:jeborg:v:68:y:2008:i:2:p:378-389

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Gradualism Cooperation Asymmetric information Belief updating;

References

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  1. Matsushina, Hitoshi, 1990. "Long-term partnership in a repeated prisoner's dilemma with random matching," Economics Letters, Elsevier, vol. 34(3), pages 245-248, November.
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Cited by:
  1. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2008. "Voluntarily Separable Repeated Prisoner's Dilemma," CIRJE F-Series CIRJE-F-599, CIRJE, Faculty of Economics, University of Tokyo.
  2. Takashi Kamihigashi & Taiji Furusawa, 2007. "Global Dynamics in Infinitely Repeated Games with Additively Separable Continuous Payoffs," Discussion Paper Series 210, Research Institute for Economics & Business Administration, Kobe University.

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