Organizations and Overlapping Generations Games: Memory, Communication, and Altruism

Abstract

This paper studies the role of memory and communication in games between ongoing organizations. In each organization, each individual, upon entry into the game, replaces his predecessor who has the same preferences and faces the same strategic possibilities. Entry across distinct organizations are asynchronous: no two individuals alive at a date to have entered at the same time. We model these as repeated games between overlapping generations of individuals (OLG games).

It has been shown elsewhere that Folk Theorems hold in OLG games with long enough lived individuals who can perfectly observe the past. However, the Folk Theorem fails for many games when individuals have no prior memory, i.e., no individual can witness events that occur before his entry into the game. We examine OLG games without prior memory. We then examine such games when the past can be communicated by one generation to the next through "cheap talk" communication. With costly communication, an approximate Folk Theorem holds only when there is some altruistic link between cohorts in an organization. The equilibria in this Folk Theorem require a special form of intergenerational sanctions. In these sanctions, punishment is sometimes carried out long after both victim and perpetrator have left the game. Without this special structure, altruism may in fact destroy cooperation when it would otherwise be possible.

Keywords: Organizations, Overlapping Generations Games, Memory, Communication, Altruism

JEL Classification: C72, C73, D74, D82