An Experimental Study of Imperfect Public Monitoring: Efficiency Versus Renegotiation-Proofness

41 Pages Posted: 30 Oct 2013

See all articles by Matthew Embrey

Matthew Embrey

University of Sussex, Department of Economics

Guillaume R. Frechette

New York University (NYU) - Department of Economics

Ennio Stacchetti

New York University (NYU) - Department of Economics

Date Written: October 29, 2013

Abstract

We study experimentally behavior in a repeated partnership game with public imperfect monitoring, and focus on whether subjects are affected by renegotiation concerns. The signal in our design is rather simple: it indicates only a success or a failure in each period. In some treatments, the equilibrium with the highest payoffs is renegotiation-proof, while in others it is not. Results indicate subjects' play is affected by the inclusion of a choice that permits some cooperation with more forgiving punishments, but that they do not play the renegotiation-proof equilibrium. However, when the renegotiation hypothesis predicts forgiving (short) punishments, subjects using cooperative strategies are indeed more likely to be forgiving. The experiment also reveals the use of strategies that have not been documented before, highlighting the importance of exploring different monitoring structures. Finally, our design includes communication, which we observe to be used to reduce strategic uncertainty.

Suggested Citation

Embrey, Matthew and Frechette, Guillaume R. and Stacchetti, Ennio, An Experimental Study of Imperfect Public Monitoring: Efficiency Versus Renegotiation-Proofness (October 29, 2013). Available at SSRN: https://ssrn.com/abstract=2346751 or http://dx.doi.org/10.2139/ssrn.2346751

Matthew Embrey

University of Sussex, Department of Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.sussex.ac.uk/economics/people/peoplelists/person/363998

Guillaume R. Frechette (Contact Author)

New York University (NYU) - Department of Economics ( email )

19 West Fourth St., 6th floor
New York, NY 10012
United States

HOME PAGE: http://https://files.nyu.edu/gf35/public/html/econ.htm

Ennio Stacchetti

New York University (NYU) - Department of Economics ( email )

19 West Fourth St, 6th floor
New York, NY 10012
United States

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