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Continuous Time Limits of Repeated Games with Imperfect Public Monitoring

  • Drew Fudenberg

    (Harvard University)

  • David Levine

    (Washington University)

In a repeated game with imperfect public information, the set of equilibria depends on the way that the distribution of public signals varies with the players' actions. Recent research has focused on the case of "frequent monitoring," where the time interval between periods becomes small. Here we study a simple example of a commitment game with a long-run and short-run player in order to examine different specifications of how the signal distribution depends upon period length. We give a simple criterion for the existence of efficient equilibrium, and show that the efficiency of the equilibria that can be supported depends in an important way on the effect of the player's actions on the variance of the signals, and whether extreme values of the signals are "bad news" of "cheating" behavior, or "good news" of "cooperative" behavior. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.02.002
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 10 (2007)
Issue (Month): 2 (April)
Pages: 173-192

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Handle: RePEc:red:issued:06-189
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  1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, March.
  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. Yuliy Sannikov & Andrzej Skrzypacz, 2007. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," American Economic Review, American Economic Association, vol. 97(5), pages 1794-1823, December.
  4. Drew Fudenberg & David K. Levine & Satoru Takahashi, 2004. "Perfect Public Equilibrium When Players Are Patient," Harvard Institute of Economic Research Working Papers 2051, Harvard - Institute of Economic Research.
  5. D. Fudenberg & D. M. Kreps & E. Maskin, 1998. "Repeated Games with Long-run and Short-run Players," Levine's Working Paper Archive 608, David K. Levine.
  6. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, December.
  7. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
  8. Drew Fudenberg & David K. Levine, 1983. "Subgame-Perfect Equilibria of Finite- and Infinite-Horizon Games," Levine's Working Paper Archive 219, David K. Levine.
  9. Hellwig, Martin & Schmidt, Klaus M., 1998. "Discrete-Time Approximations of the Holmström-Milgrom Brownian-Motion, Model of Intertemporal Incentive Provision," Sonderforschungsbereich 504 Publications 98-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  10. Fudenberg, D. & Levine, D.K. & Maskin, E., 1989. "The Folk Theorem With Inperfect Public Information," Working papers 523, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Muller, Holger M., 2000. "Asymptotic Efficiency in Dynamic Principal-Agent Problems," Journal of Economic Theory, Elsevier, vol. 91(2), pages 292-301, April.
  12. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  13. Drew Fudenberg & David K Levine, 1999. "Efficiency and Observability with Long-Run and Short-Run Players," Levine's Working Paper Archive 81, David K. Levine.
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