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Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems

  • Bhaskar, V

This paper analyses the sustainability of intergenerational transfers in Samuelson's consumption-loan model when agents are imperfectly informed about past events. The authors find that with mild informational constraints, transfers cannot be supported by pure-strategy equilibria. Mixed strategies allow transfers to be sustained even if agents have little information, so that a version of the Folk theorem holds. However, these equilibria are not robust. If each agent's utility function is subjected to a small random perturbation as in Harsanyi (1973), these mixed strategy equilibria unravel, and only the zero-transfer allocation survives as the unique rationalizable outcome. This result is an example of mixed strategy equilibrium of an extensive form game which cannot be purified. Copyright 1998 by The Review of Economic Studies Limited.

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Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 65 (1998)
Issue (Month): 1 (January)
Pages: 135-49

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Handle: RePEc:bla:restud:v:65:y:1998:i:1:p:135-49
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  1. Basu, Kaushik, 1990. "On the Non-existence of a Rationality Definition for Extensive Games," International Journal of Game Theory, Springer, vol. 19(1), pages 33-44.
  2. Drew Fudenberg & David K. Levine, 1995. "Reputation and Equilibrium Selection in Games with a Patient Player," Levine's Working Paper Archive 103, David K. Levine.
  3. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  4. Aumann, Robert J. & Sorin, Sylvain, 1989. "Cooperation and bounded recall," Games and Economic Behavior, Elsevier, vol. 1(1), pages 5-39, March.
  5. Hendricks, Ken & Judd, Ken & Kovenock, Dan, 1980. "A note on the core of the overlapping generations model," Economics Letters, Elsevier, vol. 6(2), pages 95-97.
  6. Lipman, Barton L. & Srivastava, Sanjay, 1990. "Informational requirements and strategic complexity in repeated games," Games and Economic Behavior, Elsevier, vol. 2(3), pages 273-290, September.
  7. Kandori, Michihiro, 1992. "Repeated Games Played by Overlapping Generations of Players," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 81-92, January.
  8. Smith, Lones, 1992. "Folk theorems in overlapping generations games," Games and Economic Behavior, Elsevier, vol. 4(3), pages 426-449, July.
  9. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  10. Salant, David J., 1991. "A repeated game with finitely lived overlapping generations of players," Games and Economic Behavior, Elsevier, vol. 3(2), pages 244-259, May.
  11. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
  12. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-11, Sept.-Oct.
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