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Reputation Effects and Equilibrium Degeneracy in Continuous-Time Games

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    Abstract

    We study a class of continuous-time reputation games between a large player and a population of small players in which the actions of the large player are imperfectly observable. The large player is either a normal type, who behaves strategically, or a behavioral type, who is committed to playing a certain strategy. We provide a complete characterization of the set of sequential equilibrium payoffs of the large player using an ordinary differential equation. In addition, we identify a sufficient condition for the sequential equilibrium to be unique and Markovian in the small players' posterior belief. An implication of our characterization is that when the small players are certain that they are facing the normal type, intertemporal incentives are trivial: the set of equilibrium payoffs of the large player coincides with the convex hull of the set of static Nash equilibrium payoffs.

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    File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1624.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1624.

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    Length: 50 pages
    Date of creation: Aug 2007
    Date of revision:
    Handle: RePEc:cwl:cwldpp:1624

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    Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
    Phone: (203) 432-3702
    Fax: (203) 432-6167
    Web page: http://cowles.econ.yale.edu/
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    Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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    Keywords: Repeated games; Reputation; Continuous time;

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    1. Eduardo Faingold & Yuri Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous Time Games," Levine's Bibliography 122247000000001487, UCLA Department of Economics.
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    Cited by:
    1. Eduardo Faingold & Yuri Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous Time Games," Levine's Bibliography 122247000000001487, UCLA Department of Economics.
    2. Osório-Costa, António M., 2009. "Efficiency Gains in Repeated Games at Random Moments in Time," MPRA Paper 13105, University Library of Munich, Germany.
    3. Li, Jingyuan & Liu, Yongming & Tian, Guoqiang, 2009. "A reputation strategic model of monetary policy in continuous-time," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 523-533, December.
    4. Osório-Costa, António M., 2009. "Frequent Monitoring in Repeated Games under Brownian Uncertainty," MPRA Paper 13104, University Library of Munich, Germany.
    5. Kyna Fong, 2007. "Evaluating Skilled Experts: Optimal Scoring Rules for Surgeons," Discussion Papers 07-043, Stanford Institute for Economic Policy Research.

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