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Discounted stochastic games with voluntary transfers

Author

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  • Susanne Goldlücke

    (University of Konstanz)

  • Sebastian Kranz

    (Ulm University)

Abstract

This paper studies discounted stochastic games with perfect or imperfect public monitoring and the opportunity to conduct voluntary monetary transfers and possibly burn money. This generalization of repeated games with transfers is ideally suited to study relational contracting in applications with long-term investments and also allows to study collusive industry dynamics. We show that for all discount factors every perfect public equilibrium payoff can be implemented with a class of simple equilibria that have a stationary structure on the equilibrium path and optimal penal codes with a stick-and-carrot structure. We develop an algorithm for perfect monitoring to compute the set of equilibrium payoffs and find simple equilibria that implement these payoffs.

Suggested Citation

  • Susanne Goldlücke & Sebastian Kranz, 2018. "Discounted stochastic games with voluntary transfers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(1), pages 235-263, July.
    • Handle: RePEc:spr:joecth:v:66:y:2018:i:1:d:10.1007_s00199-017-1060-1
    DOI: 10.1007/s00199-017-1060-1
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    Cited by:

    1. Sebastian Kranz, 2013. "Relational Contracting, Repeated Negotiations, and Hold-Up," Levine's Working Paper Archive 786969000000000676, David K. Levine.
    2. Susanne Goldlücke & Sebastian Kranz, 2018. "Discounted stochastic games with voluntary transfers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(1), pages 235-263, July.

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    More about this item

    Keywords

    Dynamic games; Relational contracting; Monetary transfers; Computation; Imperfect public monitoring; Perfect public equilibria;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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