Discounted Stochastic Games with Voluntary Transfers

Abstract

This paper studies discounted stochastic games perfect or imperfect public monitoring and the opportunity to conduct voluntary monetary transfers. We show that for all discount factors every public perfect equilibrium payoff can be implemented with a simple class of equilibria that have a stationary structure on the equilibrium path and optimal penal codes with a stick and carrot structure. We develop algorithms that exactly compute or approximate the set of equilibrium payoffs and find simple equilibria that implement these payoffs.

Keywords: stochastic games, computation, imperfect public monitoring, transfers

JEL Classification: C73, L41, C61, C63