“A ‘Super’ Folk Theorem for Dynastic Repeated Games”

 

Luca Anderlini, Dino Gerardi and Roger Lagunoff

 

Status: Economic Theory, 2008, 37:357-394.

 

Abstract: We analyze “dynastic”' repeated games. A stage game is repeatedly played by successive generations of finitely-lived players with dynastic preferences. Each individual has preferences that replicate those of the infinitely-lived players of a standard discounted infinitely-repeated game. When all players observe the past history of play, the standard repeated game and the dynastic game are equivalent

 

In our model all players live one period and do not observe the history of play that takes place before their birth, but instead receive a {\it private message} from their immediate predecessors.

 

Under very mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax of the stage game) can be sustained as a Sequential Equilibrium of the dynastic repeated game with private communication. The result applies to any stage game for which the standard Folk Theorem yields a payoff set with a non-empty interior.

 

We are also able to characterize entirely when a Sequential Equilibrium of the dynastic repeated game can yield a payoff vector not sustainable as a Subgame Perfect Equilibrium of the standard repeated game. For this to be the case it must be that the players' equilibrium beliefs violate a condition that we term ``Inter-Generational Agreement.''

 

Download: PDF File (Paper and Technical Addendum).

 

 

 

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