Advanced Search
MyIDEAS: Login to save this paper or follow this series

Equilibrium Degeneracy and Reputation Effects in Continuous-Time Games

Contents:

Author Info

  • Eduardo Faingold

    ()
    (Economics University of Pennsylvania)

  • Yuliy Sannikov
Registered author(s):

    Abstract

    We study a continuous-time reputation game between a large player and a population of small players in which the actions of the large player are imperfectly observable. We explore two versions of the game. In the complete information game, in which it is common knowledge that the large player is a strategic normal type, we show that \emph{intertemporal incentives collapse}: irrespective of players' patience and signal informativeness, the set of equilibrium payoffs of the large player coincides with (the convex hull of) the set of static Nash equilibrium payoffs. In the incomplete information game, the small players assign positive probability to the large player being a \emph{commitment type}, who plays the same action at all times, irrespective of the past history of play, or a \emph{normal type} (with payoffs from the complete information game). With this perturbation, nontrivial intertemporal incentives arise. In this two-type setting, we characterize the set of Nash equilibrium payoffs of the large player by means of a pair of ordinary differential equations. Furthermore, we show that for any prior probability on the large player's types, the large player's maximum Nash equilibrium payoff is attained by a Markov equilibrium, i.e., by a sequential equilibrium in strategies that depend only on the small players' common posterior belief. We illustrate our results with examples of applications in Industrial Organization, Corporate Finance and Macroeconomics.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.econ.upenn.edu/~faingold/research.htm
    Our checks indicate that this address may not be valid because: 404 Not Found (http://www.econ.upenn.edu/~faingold/research.htm [302 Found]--> http://economics.sas.upenn.edu/~faingold/research.htm). If this is indeed the case, please notify (Christian Zimmermann)
    File Function: main text
    Download Restriction: no

    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 694.

    as in new window
    Length:
    Date of creation: 03 Dec 2006
    Date of revision:
    Handle: RePEc:red:sed006:694

    Contact details of provider:
    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Email:
    Web page: http://www.EconomicDynamics.org/society.htm
    More information through EDIRC

    Related research

    Keywords: Dynamic Games; Reputation Effects; Imperfect Monitoring; Brownian Motion;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:red:sed006:694. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.