Finitely Repeated Prisoners' Dilemma with Small Fines: Penance Contract
We investigate the finitely repeated prisoners' dilemma with explicit contractual devices. We show that full collusion can be achieved by incentivizing the players' final period of play with small fines. Our incentivizing modality is the penance contract, by which a player is penalized if (and only if) he deviates from the penance strategy in the final period. We show that using this contractual agreement brings the penance strategy profile into unique subgame perfect equilibrium and achieves full collusion without being overturned by renegotiation.
|Date of creation:||Mar 2010|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
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.:
- Lipman, Barton L. & Wang, Ruqu, 2000.
"Switching Costs in Frequently Repeated Games,"
Journal of Economic Theory,
Elsevier, vol. 93(2), pages 149-190, August.
- Farrell, Joseph & Maskin, Eric, 1987.
"Renegotiation in Repeated Games,"
Department of Economics, Working Paper Series
qt9wv3h5jb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Abreu Dilip & Matsushima Hitoshi, 1994. "Exact Implementation," Journal of Economic Theory, Elsevier, vol. 64(1), pages 1-19, October.
- Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796, December.
- Benoit, Jean-Pierre & Krishna, Vijay, 1991.
"Renegotiation in Finitely Repeated Games,"
91-34, C.V. Starr Center for Applied Economics, New York University.
- Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, vol. 53(4), pages 905-922, July.
- Radner, Roy, 1980. "Collusive behavior in noncooperative epsilon-equilibria of oligopolies with long but finite lives," Journal of Economic Theory, Elsevier, vol. 22(2), pages 136-154, April.
- Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
- Friedman, James W., 1985. "Cooperative equilibria in finite horizon noncooperative supergames," Journal of Economic Theory, Elsevier, vol. 35(2), pages 390-398, August.
- Joel Sobel, 1985. "A Theory of Credibility," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 557-573.
- Drew Fudenberg & Bengt Holmstrom & Paul Milgrom, 1987.
"Short-Term Contracts and Long-Term Agency Relationships,"
468, Massachusetts Institute of Technology (MIT), Department of Economics.
- Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
- Abreu, Dilip & Matsushima, Hitoshi, 1992. "Virtual Implementation in Iteratively Undominated Strategies: Complete Information," Econometrica, Econometric Society, vol. 60(5), pages 993-1008, September.
- Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2010cf720. 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: (CIRJE administrative office)
If references are entirely missing, you can add them using this form.