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Abstract:

Theoretical Economics Paper
Efficiency in Repeated Two-Action Games with Local Monitoring
Francesco Nava and 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.