A Tractable Analysis of Contagious Equilibria
41 Pages Posted: 23 Dec 2014
Date Written: July 11, 2013
This paper studies contagious equilibrium in infinitely repeated matching games. The innovation is to identify a key statistic of contagious punishment that, used together with a recursive formulation, generates tractable closed-form expressions for continuation payoffs, off equilibrium. This allows a transparent characterization of the dynamic incentives created by contagious punishment schemes.
Keywords: Cooperation, social norms, grim trigger, random matching
JEL Classification: C6, C7
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