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The Folk Theorem in Dynastic Repeated Games

A canonical interpretation of an infinitely repeated game is that of a "dynastic" repeated game: a stage game repeatedly played by successive generations of finitely-lived players with dynastic preferences. These two models are in fact equivalent when the past history of play is observable to all players. In our model all players live one period and do not observe the history of play that takes place before their birth, but instead receive a private message from their immediate predecessors. Under very mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax) can be sustained as a Sequential Equilibrium of the dynastic repeated game with private communication. The result applies to any stage game for which the standard Folk Theorem yields a payoff set with a non-empty interior. Our results stem from the fact that, in equilibrium, a player may be unable to communicate effectively relevant information to his successor in the same dynasty. This, in turn implies that following some histories of play the players’ equilibrium beliefs may violate "Inter-Generational Agreement."

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File URL: http://cowles.econ.yale.edu/P/cd/d14b/d1490.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1490.

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Length: 77 pages
Date of creation: Oct 2004
Date of revision:
Publication status: Published in Economic Theory (December 2008), 37(3): 357-394
Handle: RePEc:cwl:cwldpp:1490
Note: CFP 1239.
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Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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