Recursive Methods in Discounted Stochastic Games: An Algorithm for δ → 1 and a Folk Theorem
46 Pages Posted: 22 Dec 2010
Date Written: August 20, 2010
We present an algorithm to compute the set of perfect public equilibrium payoffs as the discount factor tends to one for stochastic games with observable states and public (but not necessarily perfect) monitoring when the limiting set of (long-run players’) equilibrium payoffs is independent of the initial state. This is the case, for instance, if the Markov chain induced by any Markov strategy profile is irreducible. We then provide conditions under which a folk theorem obtains: if in each state the joint distribution over the public signal and next period’s state satisfies some rank condition, every feasible payoff vector above the minmax payoff is sustained by a perfect public equilibrium with low discounting.
Keywords: Stochastic Games
JEL Classification: C72, C73
Suggested Citation: Suggested Citation