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Informational Constraints and the Overlapping Generations Model : Folk and Anti-Folk Theorems

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  • Bhaskar, V.

    (Tilburg University, Center For Economic Research)

Abstract

This paper analyses the sustainability of inter-generational transfers in Samuelson's consumption-loan model when agents are imperfectly informed about past events. We find that with mild informational constraints, transfers cannot be supported by pure-strategy equilibria. Mixed strategies allow transfers to be sustained even if agents have little information, so that a version of the Folk theorem holds. However, these equilibria are not robust. If each agent's utility function is subjected to a small random perturbation as in Harsanyi (1973), these mixed strategy equilibria unravel, and only the zero-transfer allocation survives as the unique rationalizable outcome. This result is an example of mixed strategy equilibrium of an extensive form game which cannot be purified.
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  • Bhaskar, V., 1994. "Informational Constraints and the Overlapping Generations Model : Folk and Anti-Folk Theorems," Discussion Paper 1994-85, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:46a2a327-5203-4940-91e2-2695638a101b
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