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An observability paradox in linked enforcement

Author

Listed:
  • Wen, Quan
  • Zheng, Bingyong

Abstract

The presence of observation errors limits players' ability to detect deviations, and hence the possibility of efficient cooperation in repeated games. When players interact repeatedly in multiple games with imperfect observation in at least one game, however, we find a novel spillover effect that enhances players' ability to sustain cooperation. This finding suggests the presence of observation error can increase the likelihood of efficient cooperation when players interact in multiple repeated games simultaneously. Our result has important implications for industrial organizations, relational contracts, and international cooperation.

Suggested Citation

  • Wen, Quan & Zheng, Bingyong, 2024. "An observability paradox in linked enforcement," Games and Economic Behavior, Elsevier, vol. 147(C), pages 206-220.
    • Handle: RePEc:eee:gamebe:v:147:y:2024:i:c:p:206-220
    DOI: 10.1016/j.geb.2024.07.005
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    More about this item

    Keywords

    Repeated game; Linked enforcement; Imperfect observation; Multimarket contact; Issue linkage;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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