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Check Your Partners' Behavior by Randomization: New Efficiency Results on Repeated Games with Imperfect Monitoring

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Author Info
Michihiro Kandori (Faculty of Economics, University of Tokyo.)
Abstract

Randomization is an effective way of extracting information from a limited number of observations, as random auditing shows. We employ this idea to support efficient outcomes in repeated games with imperfect monitoring, when information is severely limited. In particular, we show that efficiency can be improved when the players randomize and condition their future actions both on the signal and their actions. Firstly, we show that in a version of Radner, Myerson and Maskin's example of inefficient partnership, efficiency can be achieved by such (i.e., privately mixed strategy) equilibria. Secondly, we show that the folk theorem under imperfect public monitoring can be extended to the case with a small signal space by means of mixed strategy equilibria with communication. In particular, we show that for generic symmetric games with at least four players, we can drop the Fudenberg-Levine-Maskin condition on the number of actions and signals altogether and prove the folk theorem under the same condition as in the perfect monitoring case.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-45.

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Length: 23 pages
Date of creation: May 1999
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Handle: RePEc:tky:fseres:99cf49

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. George J. Mailath & Stephen Morris, . ""Repeated Games with Imperfect Private Monitoring: Notes on a Coordination Perspective''," CARESS Working Papres 98-07, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  2. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, vol. 66(3), pages 627-652, May.
  3. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  4. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 53(1), pages 59-69, January. [Downloadable!] (restricted)
  5. Fudenberg Drew & Levine David K., 1994. "Efficiency and Observability with Long-Run and Short-Run Players," Journal of Economic Theory, Elsevier, vol. 62(1), pages 103-135, February. [Downloadable!] (restricted)
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  6. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine. [Downloadable!]
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  7. Ben-Porath, Elchanan & Kahneman, Michael, 1996. "Communication in Repeated Games with Private Monitoring," Journal of Economic Theory, Elsevier, vol. 70(2), pages 281-297, August. [Downloadable!] (restricted)
  8. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  9. V. Bhaskar & Eric van Damme, 1998. "Moral Hazard and Private Monitoring," Game Theory and Information 9809004, EconWPA. [Downloadable!]
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  1. Michihiro Kandori & Ichiro Obara, 2004. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," Levine's Bibliography 122247000000000055, UCLA Department of Economics. [Downloadable!]
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  2. Ichiro Obara, 2004. "Efficiency in Repeated Games Revisited: The Role of Private Strategies (with M. Kandori)," UCLA Economics Online Papers 281, UCLA Department of Economics. [Downloadable!]
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