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A Folk Theorem for Games when Frequent Monitoring Decreases Noise

  • Osório António M.


    (Universidad Carlos III de Madrid and Universitat Rovira i Virgili)

This paper studies frequent monitoring in an infinitely repeated game with imperfect public information and discounting, where players observe the state of a continuous time Brownian process at moments in time of length Δ. It shows that a limit folk theorem can be achieved with imperfect public monitoring when players monitor each other at the highest frequency, i.e., Δ↓0. The approach assumes that the expected joint output depends exclusively on the action profile simultaneously and privately decided by the players at the beginning of each period of the game, but not on Δ. The strong decreasing effect on the expected immediate gains from deviation when the interval between actions shrinks, and the associated increase precision of the public signals, make the result possible in the limit.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 12 (2012)
Issue (Month): 1 (April)
Pages: 1-27

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Handle: RePEc:bpj:bejtec:v:12:y:2012:i:1:n:11
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  1. Skrzypacz, Andrzej & Sannikov, Yuliy, 2005. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," Research Papers 1887, Stanford University, Graduate School of Business.
  2. Abreu, Dilip & Milgrom, Paul & Pearce, David, 1991. "Information and Timing in Repeated Partnerships," Econometrica, Econometric Society, vol. 59(6), pages 1713-33, November.
  3. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
  4. David Dickinson & Marie-Claire Villeval, 2005. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," Working Papers 05-12, Department of Economics, Appalachian State University.
  5. Fudenberg, Drew & Olszewski, Wojciech, 2011. "Repeated games with asynchronous monitoring of an imperfect signal," Games and Economic Behavior, Elsevier, vol. 72(1), pages 86-99, May.
  6. Drew Fudenberg & David K. Levine, 1986. "Limit Games and Limit Equilibria," Levine's Working Paper Archive 220, David K. Levine.
  7. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  8. Eduardo Faingold & Yuri Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous Time Games," Levine's Bibliography 122247000000001487, UCLA Department of Economics.
  9. Eduardo Faingold & Yuliy Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous-Time Games," Cowles Foundation Discussion Papers 1624, Cowles Foundation for Research in Economics, Yale University.
  10. Yuliy Sannikov, 2007. "Games with Imperfectly Observable Actions in Continuous Time," Econometrica, Econometric Society, vol. 75(5), pages 1285-1329, 09.
  11. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  12. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  13. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  14. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  15. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, December.
  16. Bergin, James & MacLeod, W Bentley, 1993. "Continuous Time Repeated Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 21-37, February.
  17. Fudenberg, Drew & Olszewski, Wojciech, 2011. "Repeated games with asynchronous monitoring of an imperfect signal," Scholarly Articles 27755311, Harvard University Department of Economics.
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