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Frequent Monitoring in Repeated Games under Brownian Uncertainty

  • Osório-Costa, António M.

This paper studies frequent monitoring in a simple infinitely repeated game with imperfect public information and discounting, where players observe the state of a continuous time Brownian process at moments in time of length Δ. It shows that efficient strongly symmetric perfect public equilibrium payoffs can be achieved with imperfect public monitoring when players monitor each other at the highest frequency, i.e. Δ→0. The approach proposed places distinct initial conditions on the process, which depend on the unknown action profile simultaneously and privately decided by the players at the beginning of each period of the game. The strong decreasing effect on the expected immediate gains from deviation when the interval between actions shrinks, and the associated increase precision of the public signals, make the result possible in the limit. The existence of a positive monotonic relation between payoffs and monitoring intensity is also found.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13104.

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Date of creation: 04 Jan 2009
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Handle: RePEc:pra:mprapa:13104
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  1. Eduardo Faingold & Yuri Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous Time Games," Levine's Bibliography 122247000000001487, UCLA Department of Economics.
  2. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, March.
  3. David G. Pearce & Dilip Abreu & Paul R. Milgrom, 1988. "Information and Timing in Repeated Partnerships," Cowles Foundation Discussion Papers 875, Cowles Foundation for Research in Economics, Yale University.
  4. 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.
  5. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 2058, David K. Levine.
  6. 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.
  7. 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.
  8. Yuliy Sannikov, 2007. "Games with Imperfectly Observable Actions in Continuous Time," Econometrica, Econometric Society, vol. 75(5), pages 1285-1329, 09.
  9. Yuliy Sannikov & Andrzej Skrzypacz, 2006. "The role of information in repeated games with frequent actions," 2006 Meeting Papers 871, Society for Economic Dynamics.
  10. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  11. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  12. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  13. Kandori, Michihiro, 1992. "The Use of Information in Repeated Games with Imperfect Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 581-93, July.
  14. Eduardo Faingold & Yuliy Sannikov, 2007. "Reputation Effects and Equilibrium Degeneracy in Continuous-Time Games," Cowles Foundation Discussion Papers 1624, Cowles Foundation for Research in Economics, Yale University.
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