Theoretical Economics, Volume 11, Number 1 (January 2016)

Theoretical Economics 11 (2016), 53–87


Approximate efficiency in repeated games with side-payments and correlated signals

Jimmy Chan, Wenzhang Zhang

Abstract


Side-payments are common in many long-term relationships. We show that when players can exchange side-payments, approximate efficiency is achievable in any repeated game with private monitoring and communication, so long as the players can observe their own payoffs and are sufficiently patient, the efficient stage-game outcome is unique, and the signal distribution has full support. Unlike existing results in the literature, our result does not require deviations be statistically detectable.

Keywords: Repeated games, private monitoring, communication

JEL classification: C73

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