Efficiency and Obsevability with Long-Run and Short-Run Players
We present a general algorithm for computing the limit, as Î´ â†’ 1, of the set of payoffs of perfect public equilibria of repeated games with long-run and short-run players, allowing for the possibility that the playersâ€² actions are not observable by their opponents. We illustrate the algorithm with two economic examples. In a simple partnership we show how to compute the equilibrium payoffs when the folk theorem fails. In an investment game, we show that two competing capitalists subject to moral hazard may both become worse off if their firms are merged and they split the profits from the merger. Finally, we show that with short-run players each long-run playerâ€²s highest equilibrium payoff is generally greater when their realized actions are observed.
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|Date of creation:||1991|
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- Kreps, David M. & Wilson, Robert, 1982.
"Reputation and imperfect information,"
Journal of Economic Theory,
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- Edward J Green & Robert H Porter, 1997.
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Levine's Working Paper Archive
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- Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
- Hansen, Gary D., 1985.
"Indivisible labor and the business cycle,"
Journal of Monetary Economics,
Elsevier, vol. 16(3), pages 309-327, November.
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