On the Folk Theorem in Self-Sustained Communities

45 Pages Posted: 22 Feb 2022

See all articles by Yosuke Yasuda

Yosuke Yasuda

Osaka University - Graduate School of Economics

Takako Fujiwara-Greve

Keio University - Faculty of Economics

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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 incentivecompatible: 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

Suggested Citation

Yasuda, Yosuke and Fujiwara-Greve, Takako, On the Folk Theorem in Self-Sustained Communities. Available at SSRN: https://ssrn.com/abstract=4041014 or http://dx.doi.org/10.2139/ssrn.4041014

Yosuke Yasuda (Contact Author)

Osaka University - Graduate School of Economics ( email )

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

Takako Fujiwara-Greve

Keio University - Faculty of Economics ( email )

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

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