Monitoring and Heterogeneity in Dynamic Games

In this thesis we study the impact of monitoring and heterogeneity on the set of equilibria of dynamic games. In Chapter 1 we show how heterogeneity in time preferences can help create new intertemporal incentives. Proving the folk theorem in a game with three or more players usually requires imposing restrictions on the dimensionality of the stage-game payoffs. Considering a class of games in which those restrictions do not hold, we show how to recover a folk theorem by allowing time preferences to vary across players. In Chapters 2 and 3 we show how a small degree of imperfection in the monitoring technology can have large effects on the set of equilibria of dynamic games. We study a dynamic voluntary contribution game with irreversibility and a game with an asymptotically finite horizon. In both settings, when monitoring is perfect, players can cooperate and obtain payoffs in the repeated game that are strictly greater than the payoffs from the unique inefficient stage-game equilibrium. We show however that introducing an arbitrarily small amount of noise in the monitoring technology can cause a complete breakdown in cooperation. Finally in Chapter 4 we investigate how information is transmitted in a revision game with one-sided incomplete information. Players aim to coordinate on an action which depends on an unknown state of the world and players can only revise their actions stochastically during a preparation stage, at the end of which the prepared action profile is implemented. Miscoordination arises from the possibility of no longer receiving revision opportunities until the deadline. We show that close to the deadline no information is transmitted and that far from the deadline the uninformed player prefers to be miscoordinated.