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Repeated Games with Observation Costs

Author

Listed:
  • Eiichi Miyagawa

    (Department of Economics, Columbia University)

  • Yasuyuki Miyahara

    (Graduate School of Business Administration, Kobe University)

  • Tadashi Sekiguchi

    (Institute of Economic Research, Kyoto University)

Abstract

This paper analyzes repeated games in which it is possible for players to observe the other players' past actions without noise but it is costly. One's observation decision itself is not observable to the other players, and this private nature of monitoring activity makes it difficult to give the players proper incentives to monitor each other. We provide a sufficient condition for a feasible payoff vector to be approximated by a sequential equilibrium when the observation costs are sufficiently small. We then show that this result generates an approximate Folk Theorem for a wide class of repeated games with observation costs. The Folk Theorem holds for a variant of prisoners' dilemma, partnership games, and any games in which the players have an ability to "burn" small amounts of thier own payoffs.

Suggested Citation

  • Eiichi Miyagawa & Yasuyuki Miyahara & Tadashi Sekiguchi, 2003. "Repeated Games with Observation Costs," KIER Working Papers 565, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:565
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    Citations

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    Cited by:

    1. Hino, Yoshifumi, 2018. "A folk theorem in infinitely repeated prisoner's dilemma with small observation cost," MPRA Paper 90381, University Library of Munich, Germany.
    2. Hino, Yoshifumi, 2018. "A folk theorem in infinitely repeated prisoner's dilemma with small observation cost," MPRA Paper 96010, University Library of Munich, Germany, revised 13 Sep 2019.
    3. Ichiro Obara, "undated". "Endogenous Monitoring," UCLA Economics Online Papers 398, UCLA Department of Economics.
    4. Hino, Yoshifumi, 2019. "An efficiency result in a repeated prisoner’s dilemma game under costly observation with nonpublic randomization," Mathematical Social Sciences, Elsevier, vol. 101(C), pages 47-53.

    More about this item

    Keywords

    repeated games; private monitoring; costly monitoring; Folk Theorem.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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