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Restricted feedback in long term relationships

  • Doraszelski, Ulrich
  • Escobar, Juan F.

This paper studies long term relationships, modeled as repeated games, with restricted feedback. Players condition current play on summary statistics of past play rather than the entire history, as may be the case in online markets. Our state strategy equilibrium framework allows for arbitrary restrictions on strategies. We derive a recursive characterization for the set of equilibrium payoffs similar to that of Abreu, Pearce, and Stacchetti (1986, 1990) [2,3] for perfect public equilibria and show that the set of equilibrium payoffs is the largest fixed point of a monotone operator. We use our characterization to derive necessary and sufficient conditions for efficient trade in a repeated product choice game where costumers condition their purchase decisions only on the last performance signal.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 147 (2012)
Issue (Month): 1 ()
Pages: 142-161

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Handle: RePEc:eee:jetheo:v:147:y:2012:i:1:p:142-161
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Maskin, Eric & Kreps, David & Fudenberg, Drew, 1990. "Repeated Games with Long-run and Short-run Players," Scholarly Articles 3226950, Harvard University Department of Economics.
  2. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1990. "Toward a Theory of Discounted Repeated Games with Imperfect Monitoring," Econometrica, Econometric Society, vol. 58(5), pages 1041-63, September.
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  11. George J. Mailath & Wojciech Olszewski, 2008. "Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring, Third Version," PIER Working Paper Archive 10-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 02 Mar 2010.
  12. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
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  17. Kenneth L. Judd & Sevin Yeltekin & James Conklin, 2003. "Computing Supergame Equilibria," Econometrica, Econometric Society, vol. 71(4), pages 1239-1254, 07.
  18. Ana Fernandes & Christopher Phelan, 1999. "A recursive formulation for repeated agency with history dependence," Staff Report 259, Federal Reserve Bank of Minneapolis.
  19. Kandori, Michihiro, 1992. "The Use of Information in Repeated Games with Imperfect Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 581-93, July.
  20. Daron Acemoglu & James Robinson, 1999. "A Theory of Political Transitions," Working papers 99-26, Massachusetts Institute of Technology (MIT), Department of Economics.
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  23. Mehmet Ekmekci, 2010. "Sustainable Reputations with Rating Systems," Discussion Papers 1505, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  24. Christopher Phelan & Ennio Stacchetti, 1999. "Sequential equilibria in a Ramsey tax model," Staff Report 258, Federal Reserve Bank of Minneapolis.
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