In the standard model of dynamic interaction, players are assumed to receive public signals according to some exogenous distributions for free. We deviate from this assumption in two directions to consider an aspect of information structure in a more realistic way. We assume that signals are private rather than public and that each player needs to actively monitor the other player with some costs to observe the other player's behavior. In each stage, each player decides whether to monitor the other player with some costs in addition to which action to take. We first provide a class of strategies which approximate efficiency and describe some of its interesting properties, among them are (1) each player monitors the other player randomly like "random auditing" to reduce monitoring costs and (2) players cheat and monitor at the same time in their cooperative phase. In particular, this implies that cheating may happen (randomly) during collusion for efficiency reason. Then we discuss multi-task partnership games with endogenous monitoring, where two players play H games (tasks) instead of one. The additional twist is that we allow each player to choose freely which tasks to monitor. Our main result is that, how large the monitoring cost per task is, the efficient outcome can be approximated as players become patient when there is a large enough number of tasks. This result suggests that the size of a partnership tends to be large when active monitoring is important.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aoyagi, Masaki, 2002. "Collusion in Dynamic Bertrand Oligopoly with Correlated Private Signals and Communication," Journal of Economic Theory, Elsevier, vol. 102(1), pages 229-248, January.
- Kyle Bagwell, 2004.
"Collusion and Price Rigidity,"
Theory workshop papers
658612000000000081, UCLA Department of Economics.
- Jeffrey C. Ely & Juuso Valimaki, 1999.
"A Robust Folk Theorem for the Prisoner's Dilemma,"
1264, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jeffrey Ely, 2000. "A Robust Folk Theorem for the Prisoners' Dilemma," Econometric Society World Congress 2000 Contributed Papers 0210, Econometric Society.
- Athey, Susan & Bagwell, Kyle, 2001.
"Optimal Collusion with Private Information,"
RAND Journal of Economics,
The RAND Corporation, vol. 32(3), pages 428-65, Autumn.
- Michihiro Kandori & Ichiro Obara, 2003.
"Efficiency in Repeated Games Revisited: The Role of Private Strategies,"
UCLA Economics Working Papers
826, UCLA Department of Economics.
- Michihiro Kandori & Ichiro Obara, 2006. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," Econometrica, Econometric Society, vol. 74(2), pages 499-519, 03.
- Michihiro Kandori & Ichiro Obara, 2004. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," Levine's Bibliography 122247000000000055, UCLA Department of Economics.
- Michihiro Kandori & Ichiro Obara, 2003. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," CIRJE F-Series CIRJE-F-255, CIRJE, Faculty of Economics, University of Tokyo.
- Green, Edward J & Porter, Robert H, 1984.
"Noncooperative Collusion under Imperfect Price Information,"
Econometric Society, vol. 52(1), pages 87-100, January.
- Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
- Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
- Eiichi Miyagawa & Yasuyuki Miyahara & Tadashi Sekiguchi, 2003. "Repeated Games with Observation Costs," KIER Working Papers 565, Kyoto University, Institute of Economic Research.
- 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.
- Ben-Porath, Elchanan & Kahneman, Michael, 2003. "Communication in repeated games with costly monitoring," Games and Economic Behavior, Elsevier, vol. 44(2), pages 227-250, August.
- Piccione, Michele, 2002. "The Repeated Prisoner's Dilemma with Imperfect Private Monitoring," Journal of Economic Theory, Elsevier, vol. 102(1), pages 70-83, January.
- Jeffrey C. Ely & Johannes Hörner & Wojciech Olszewski, 2005.
"Belief-Free Equilibria in Repeated Games,"
Econometric Society, vol. 73(2), pages 377-415, 03.
- Ichiro Obara, 2000. "Private Strategy and Efficiency: Repeated Partnership Games Revisited," Econometric Society World Congress 2000 Contributed Papers 1449, Econometric Society.
When requesting a correction, please mention this item's handle: RePEc:cla:uclaol:398. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tim Kwok)
If references are entirely missing, you can add them using this form.