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Abstract for:

Efficiency in Repeated Two-Action Games with Local Monitoring

Francesco Nava,  Michele Piccione,  September 2011
Paper No' TE/2012/560: Full paper (pdf)


The paper discusses community enforcement in infinitely repeated two-action games with local monitoring. Each player interacts with and observes only a fixed set of partners, of whom he is privately informed. The main result shows that for generic beliefs efficiency can be sustained in a sequential equilibrium in which strategies are independent of theplayers’ beliefs about the monitoring structure. Stronger results are obtained when players are arbitrarily patient and payoffs are evaluated according to Banach-Mazur limits, and when players are impatient and only acyclic monitoring structures are allowed.