On The Folk Theorem in Self-Sustained Communities

45 Pages Posted: 8 Jul 2021 Last revised: 14 Jan 2022

See all articles by Takako Fujiwara-Greve

Takako Fujiwara-Greve

Keio University - Faculty of Economics

Yosuke Yasuda

Osaka University - Graduate School of Economics

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Date Written: January 14, 2022

Abstract

In the current mobile world, repeated relationships (communities) must be self-sustained by its members. We formulate a framework in which some or all players strategically choose whether to repeat an N-person game or to terminate it. This dynamic game ends when a certain number of players choose termination. To sustain the maximal set of outcomes (the folk theorem), the players need to inflict the severest punishment towards a deviator which may be termination. However, if termination occurs, players cannot reward one another afterward, as in the repeated game literature (Fudenberg and Maskin, 1986), restricting the incentive to punish a deviator. We construct new mechanisms to make termination incentive-compatible: synchronization and the "expulsion room" method used by some Japanese firms. Our results provide a foundation for the folk theorem: even when the game duration is endogenous, the players can achieve non-myopic behaviors as much as possible.

Keywords: community, termination, voting, repeated game, folk theorem

JEL Classification: C73

Suggested Citation

Fujiwara-Greve, Takako and Yasuda, Yosuke, On The Folk Theorem in Self-Sustained Communities (January 14, 2022). Available at SSRN: https://ssrn.com/abstract=3879767 or http://dx.doi.org/10.2139/ssrn.3879767

Takako Fujiwara-Greve

Keio University - Faculty of Economics ( email )

2-15-45 Mita, Ninato-ku
Tokyo 1088345
Japan

Yosuke Yasuda (Contact Author)

Osaka University - Graduate School of Economics ( email )

1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan

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