The Folk Theorem for Repeated Games with Time-Dependent Discounting

This paper defines a general framework to study infinitely repeated games with time-dependent discounting in which we distinguish and discuss both time-consistent and -inconsistent preferences. To study the long-term properties of repeated games, we introduce an asymptotic condition to characterize the fact that players become more and more patient; that is, the discount factors at all stages uniformly converge to one. Two types of folk theorems are proven without the public randomization assumption: the asymptotic one, that is, the equilibrium payoff set converges to the feasible and individual rational set as players become patient, and the uniform one, that is, any payoff in the feasible and individual rational set is sustained by a single strategy profile that is an approximate subgame perfect Nash equilibrium in all games with sufficiently patient discount factors. We use two methods for the study of asymptotic folk theorem: the self-generating approach and the constructive proof. We present the constructive proof in the perfect-monitoring case and show that it can be extended to time-inconsistent preferences. The self-generating approach applies to the public-monitoring case but may not extend to time-inconsistent preferences because of a nonmonotonicity result.

Management of Innovation and Intellectual Property in Outsourcing Projects

Innovation outsourcing creates two critical risks for a client firm. The first risk arises when a client discloses his/her technological knowhow and intellectual property (IP) with the service provider but the latter misappropriates the IP toward its own commercial benefit. Second, in the absence of perfect monitoring, the service provider might exert suboptimal effort on the innovation project. Management of client’s technology and innovation effort of agent are both crucially important in innovation outsourcing. It is shown that client can deter these risks by designing an appropriate contract. Two distinct regimes are considered. In Regime1, the client operates in an environment where IP cannot be protected. In Regime2, client’s IP is fully protected either due to strong legal enforcement or due to availability of a technological solution. First, it is found that an incentive payment scheme linked with project outcome can mitigate the shirking problem. Second, in Regime1, the client must provide higher compensation to the agent when compared to Regime2. A carrot and stick strategy involving higher incentive payments along with reduced sharing of background IP can deter the opportunistic behavior of the service provider. Third, if the cost of operating in Regime2 is prohibitively high, then the client can operate in Regime1 and yet obtain higher profits. In such a scenario, the client must use the carrot and stick strategy. Finally, due to predominant motive to reduce costs, clients might not be compensating their service providers appropriately. Such myopic cost-cutting strategy would exacerbate the IP misappropriation and suboptimal quality problems associated with outsourcing.

Equilibrium payoffs in two-player discounted OLG games

This paper studies payoffs in subgame perfect equilibria of two-player discounted overlapping generations games with perfect monitoring. Assuming that mixed strategies are observable and a public randomization device is available, it is shown that sufficiently patient players can obtain any payoffs in the interior of the smallest rectangle containing the feasible and strictly individually rational payoffs of the stage game, when we first choose the rate of discount and then choose the players’ lifespan. Unlike repeated games without overlapping generations, obtaining payoffs outside the feasible set of the stage game does not require unequal discounting.

A complete folk theorem for finitely repeated games

This paper analyzes the set of pure strategy subgame perfect Nash equilibria of any finitely repeated game with complete information and perfect monitoring. The main result is a complete characterization of the limit set, as the time horizon increases, of the set of pure strategy subgame perfect Nash equilibrium payoff vectors of the finitely repeated game. This model includes the special case of observable mixed strategies.

Algorithms for Stochastic Games With Perfect Monitoring

We study the pure‐strategy subgame‐perfect Nash equilibria of stochastic games with perfect monitoring, geometric discounting, and public randomization. We develop novel algorithms for computing equilibrium payoffs, in which we combine policy iteration when incentive constraints are slack with value iteration when incentive constraints bind. We also provide software implementations of our algorithms. Preliminary simulations indicate that they are significantly more efficient than existing methods. The theoretical results that underlie the algorithms also imply bounds on the computational complexity of equilibrium payoffs when there are two players. When there are more than two players, we show by example that the number of extreme equilibrium payoffs may be countably infinite.

Monitoring and punishment networks in an experimental common pool resource dilemma

With the aid of a lab experiment, we explored how imperfect monitoring and punishment networks impacted appropriation, punishment and beliefs in a common pool resource appropriation dilemma. We studied the differences between the complete network (with perfect monitoring and punishment, in which everyone can observe and punish everyone else) and two ‘imperfect’ networks (that systematically reduce the number of subjects who could monitor and punish others): the directed and undirected circle networks. We found that free riders were punished in all treatments, but the network topology impacted the type of punishment: the undirected circle induced more severe punishment and prosocial punishment compared to the other two networks. Both imperfect networks were more efficient because the larger punishment capacity available in the complete network elicited higher punishment amount.

Strategy Choice in the Infinitely Repeated Prisoner’s Dilemma

We use a novel experimental design to reliably elicit subjects’ strategies in an infinitely repeated prisoner’s dilemma experiment with perfect monitoring. We find that three simple strategies repre‑ sent the majority of the chosen strategies: Always Defect, Tit‑for‑Tat, and Grim. In addition, we identify how the strategies systematically vary with the parameters of the game. Finally, we use the elicited strategies to test the ability to recover strategies using statistical methods based on observed round‑by‑round cooperation choices and find that this can be done fairly well, but only under certain conditions. (JEL C72, C73, C92)

Implementation challenges of the mandatory health insurance scheme

Background Implementation of a mandatory insurance scheme depends on several issues, and among them are regulation, management, and program design which are very crucial. Sometimes a well-designed insurance scheme cannot attract an adequate number of people toward the scheme. Therefore, this study is aimed to explore the implementation challenges of Sajida Foundation’s health insurance scheme. Methods An exploratory qualitative research design has been applied to explore the challenges that normally exist in regular implementation process. The study population was both field and official level employees who are directly involved in the implementation process of Nirapotta scheme in Karanigoni branch. Results Successful implementation of the health insurance scheme of Sajida Foundation is getting constraints by several factors, and among them are lack of dedicated staff for this program, less involvement with community people, inadequate program knowledge dissemination to the people, and not providing incentive for work of Nirapotta are considered as the major challenges of implementation of Nirapotta Scheme. Challenges faced by policy-makers include incoordination with Microfinance Regulatory Authority and not having the latest software for perfect monitoring and evaluation of the Nirapotta program. Apart from this, there are some challenges in implementation which are normally faced in program; some of the most noteworthy findings are incoordination between employees especially in branch level, transient position of Sajida bondhu in the Nirapotta program, and low payment scale compared to other organizations. Conclusions Implementation of Nirapotta scheme is getting constraints by multiple factors which can easily be overcome by involving all necessary stakeholders and taking their valuable concern for further development of the scheme to ensure long-term sustainability of the program.

Sustaining Cooperation: Community Enforcement versus Specialized Enforcement

We introduce the possibility of coercive punishment by specialized enforcers into a model of community enforcement. We assume that, just as regular agents need to be given incentives to cooperate with each other, specialized enforcers need to be given incentives to carry out costly punishments. We fully characterize optimal equilibria in the model. When the specialized enforcement technology is sufficiently effective, cooperation is best sustained by a “one-time enforcer punishment equilibrium”, where any deviation by a regular agent is punished only once, and only by enforcers. In contrast, enforcers themselves are disciplined (at least in part) by community enforcement. The reason why there is no community enforcement following deviations by regular agents is that such a response, by reducing future cooperation, would decrease the amount of punishment that enforcers are willing to impose on deviators. Conversely, when the specialized enforcement technology is less effective, optimal equilibria involve a mix of specialized enforcement and community enforcement (which might take the form of “ostracism”). Our results hold both under perfect monitoring of actions and under various types of private monitoring.

The Impact of Monitoring in Infinitely Repeated Games: Perfect, Public, and Private

This paper uses a laboratory experiment to study the effect of the monitoring structure on the play of the infinitely repeated prisoner’s dilemma. Keeping the strategic form of the stage game fixed, we examine the behavior of subjects when information about past actions is perfect (perfect monitoring), noisy but public (public monitoring), and noisy and private (private monitoring). We find that the subjects sustain cooperation in every treatment, but that their strategies differ across the three treatments. Specifically, the strategies under imperfect monitoring are both more complex and more lenient than those under perfect monitoring. The results show how the changes in strategies across monitoring structures mitigate the effect of noise in monitoring on efficiency. (JEL C72, C73, C92, D82, D83)