Network formation and cooperation in finitely repeated games
نویسنده
چکیده
A finitely repeated multi-player prisoner’s dilemma game has a unique, defective Nash equilibrium when played in a fixed group or on a fixed network. This paper shows that, in contrast, cooperation can be achieved in a subgame-perfect Nash equilibrium of a finitely repeated prisoner’s dilemma game when played over an endogenously formed network. The following game is finitely repeated: in each period players simultaneously establish the network and play the prisoner’s dilemma game with their neighbors in the network. Link formation is either mutual or unilateral. Cooperation can be achieved in a subgameperfect equilibrium when either (i) linking costs are marginally increasing, or (ii) linking is costless but constrained. JEL Classification: A14, C72, D85
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