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On Optimal Social Convention in Voluntary Continuation Prisoner's Dilemma Games

  • Filip Vesely
  • Chun-Lei Yang

When the repeated prisoner’s dilemma setup is generalized to allow for a unilateral breakup, maximal efficiency in equilibrium remains an open question. With restrictions of simple symmetry with eternal mutual cooperation, defection, or (matched) alternation on the equilibrium path, we describe the upper limit of discounted lifetime payoff and construct simple social conventions that, for a large set of parameters, achieve it. While all other well-known equilibrium designs in the literature punish defections with a breakup and thus reach the optimum only in degenerate cases, exploited cooperators in ours allow defectors to compensate them by cooperating more in the future.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-12/cesifo1_wp4553.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4553.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4553
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  1. Kranton, Rachel E, 1996. "The Formation of Cooperative Relationships," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 214-33, April.
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  11. Rafael Rob & Huanxing Yang, 2006. "Long Term Relationships as Safeguards," Levine's Working Paper Archive 618897000000001039, David K. Levine.
  12. Jan Eeckhout, 2006. "Minorities and Endogenous Segregation," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 31-53.
  13. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  14. Takahashi, Satoru, 2010. "Community enforcement when players observe partners' past play," Journal of Economic Theory, Elsevier, vol. 145(1), pages 42-62, January.
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