Osório-Costa, António M. (2009): Frequent Monitoring in Repeated Games under Brownian Uncertainty.
Download (508kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Frequent Monitoring in Repeated Games under Brownian Uncertainty|
|Keywords:||Repeated Games; Frequent Monitoring; Imperfect Public Monitoring; Brownian Motion; Moral Hazard|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games
|Depositing User:||António Miguel Osório-Costa|
|Date Deposited:||02. Feb 2009 00:02|
|Last Modified:||19. May 2015 19:49|
Abreu, D., P. Milgrom and D. Pearce (1991). "Information and Timing in Repeated Partnerships." Econometrica, 59, 1713-1733.
Abreu, D., D. Pearce and E. Stacchetti (1986). "Optimal Cartel Equilibria with Imperfect Monitoring," Journal of Economic Theory, 39, 251-269.
Abreu, D., D. Pearce and E. Stacchetti (1990). "Toward a Theory of Discounted Repeated Games with Imperfect Monitoring." Econometrica, 58, 1041-1063.
Alchian, A. and H. Demsetz (1972). "Production, Information Costs, and Economic Organization." American Economic Review, 62, 777-795.
Faingold, E., Y. Sannikov (2007). "Reputation Effects and Equilibrium Degeneracy in Continuous-Time Games," mimeo.
Fudenberg, D., D. Levine and E. Maskin (1994). "The Folk Theorem with Imperfect Public Information." Econometrica, 62, 997-1040.
Fudenberg, D. and D. Levine (2007) "Continuous Time Models of Repeated Games with Imperfect Public Monitoring." Review of Economic Dynamics, 10(2), 173-192.
Fudenberg, D. and D. Levine (2008) "Repeated Games with Frequent Signals." Quarterly Journal of Economics, forthcoming.
Fudenberg, D. and E. Maskin (1986). "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, 54, 533-554.
Fudenberg, D. and J. Tirole (1991) Game Theory, MIT Press, Cambridge, MA.
Green, E. and R. Porter (1984). "Noncooperative Collusion under Imperfect Price Information." Econometrica, 52, 87-100.
Kandori, M. (1992) "The Use of Information in Repeated Games with Imperfect Monitoring." Review of Economic Studies, 59, 581--593.
Mailath, G. and L. Samuelson (2006) Repeated Games and Reputations: Long-run Relationships. Oxford University Press, New York.
Osório-Costa, A. (2008), "Efficiency Gains in Repeated Games at Random Moments in Time," mimeo.
Porter, R. (1983). "Optimal Cartel Trigger Price Strategies." Journal of Economic Theory, 29, 313-338.
Prakasa Rao, B.L.S. (1999) Statistical Inference for Diffusion Type Processes. Arnold Publishers and Oxford University Press.
Radner, R., R. Myerson, and E. Maskin (1996) "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, 53, 59-69.
Sandberg, I. W. (1981) "Global Implicit Function Theorems," IEEE Transactions on Circuits and Systems, 28, 145--149.
Sannikov, Y. (2007). "Games with Imperfectly Observable Actions in Continuous Time," Econometrica, 75, 1285--1329.
Sannikov, Y. and A. Skrzypacz (2007a) "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," American Economic Review, 97, 1794-1823.
Sannikov, Y. and A. Skrzypacz (2007b) "The Role of Information in Repeated Games with Frequent Actions," mimeo.