COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 791

"Toward a Theory of Discounted Repeated Games with Imperfect Monitoring"

Dilip Abreu, David G. Pearce and Ennio Stacchetti

April 1986

This paper investigates pure strategy sequential equilibria of repeated games with imperfect monitoring. The approach emphasizes the equilibrium value set and the static optimization problems embedded in external equilibria. We characterize these equilibria, and provide computational and comparative statics results. The "self-generation" and "bang-bang" propositions which were at the core of our analysis of optimal cartel equilibria [2], are generalized to asymmetric games and infinite action spaces. New results on optimal implicit reward functions include the necessity (as opposed to sufficiency) of bang-bang functions, and the nature of optimal punishment regions.

JEL Classification: 026

Keywords: Pure strategy sequential equilibria, repeated games, imperfect monitoring