COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 875 "Information and Timing in Repeated Partnerships" David G. Pearce, Dilip Abreu and Paul Milgrom May 1988 In a repeated partnership game with imperfect monitoring, we distinguish among the effects of (1) shortening the period over which actions are held fixed, (2) increasing the frequency with which accumulated information is reported, and (3) reducing the amount of discounting of payoffs between successive periods. While reducing the amount of discounting generally improves incentives for cooperation, the other two changes can have the reverse effect. When the game is specified in the customary way with information reported at the end of each period of fixed action, the net effect of shortening the period length can be to destroy all incentives for cooperation, reversing the usual conclusion associated with the Folk Theorem for repeated games. Moreover, when interest rates are low, reducing the frequency of information reporting can greatly enhance the efficiency of equilibrium. JE Classification: 026 Keywords: Monitoring, repeated games, partnership, incentives, folk theorems |
