Published in:J.W.Goethe University, Frankfurt, Economics Working Paper
Extent:
1 Online-Ressource (24 p)
Language:
English
DOI:
10.2139/ssrn.278872
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 2004 erstellt
Description:
We find that - contrary to common perception - co-operation as equilibrium of the infinitely repeated discounted Prisoner's Dilemma is in many relevant cases not very plausible: For a significant subset of the payoff-discount factor parameter space, all co-operation equilibria are strictly risk dominated (in the sense of Harsanyi and Selten, 1988) by defection. We derive an easy-to-calculate critical level for the discount factor below which this happens, and argue it is a better measure for the "likelihood" of co-operation than the critical level at which co-operation is supportable in equilibrium. The results apply to other games sharing the strategic features of the repeated Prisoner's Dilemma, such as models of implicit/relational contracts, common pools and public good provision. We illustrate our main result for collusion equilibria in the repeated Cournot duopoly