When and How the Punishment Must Fit the Crime
24 Pages Posted: 18 Feb 2015
There are 2 versions of this paper
When and How the Punishment Must Fit the Crime
Date Written: February 15, 2015
Abstract
In repeated normal-form (simultaneous-move) games, simple penal codes (Abreu, 1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes. We show that the logic of simple penal codes fails in repeated extensive-form games. By means of examples, we identify two types of settings in which a subgame-perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator, but also to the nature of the deviation.
Keywords: Simple Penal Code, Subgame Perfect Equilibrium, Repeated Extensive Game, Optimal Punishment.
JEL Classification: C70, C72, C73
Suggested Citation: Suggested Citation