Efficiency results in N player games with imperfect private monitoring

This paper studies N player infinitely repeated games with imperfect private monitoring where the discount factor is close to unity. Ely and Valimaki [4] (written as EV below) construct a strategy which makes players indifferent among their actions in each period and show the folk theorem in prisoner’s dilemma games with two players when monitoring is almost perfect. However, their analysis of the N-player case is limited to a narrow class of games. This paper demonstrates that efficiency is achievable in more general games with three or more players, including a price-setting oligopoly, by introducing a dynamic ex-post equilibrium which is a generalization of EV’s. Furthermore, we show that this efficiency result holds with any degree of accuracy if private signals are independent or correlated only through a macro shock. Finally, we spread the available payoff set by modification of a strategy but it is smaller than a feasible and individually rational payoff set. Journal of Economic Literature Classification Numbers: C72, C73, D82.