Correlation in Repeated Games with Public Monitoring

Abstract

This paper studies extensive-form correlation in discounted infinitely repeated games with public monitoring. We propose two extensions of Fudenberg et al.'s (Econometrica 62:997--1040, 1994) notion of a perfect public equilibrium: the notion of a perfect public correlated equilibrium for games in which a correlation device sends private correlated messages to the players at the beginning of each period and the notion of a perfect public augmented equilibrium for games in which the device also publicly informs the players of the recommended action profile at the end of each period. The set of perfect public correlated equilibrium payoffs is compared to the set of subgame perfect publicly correlated equilibrium payoffs in the perfect monitoring case. It is shown that augmented correlation produces efficiency gains in the repeated partnership game by Radner et al. (Rev Econ Stud 53:59-69, 1986).

Keywords: Repeated Games, Extensive form correlation, Efficiency, Imperfect public monitoring, Perfect monitoring

JEL Classification: C72, C73