Cooperation cannot be sustained in a Discounted Repeated Prisoners’ Dilemma with Patient Short and Long Run Players

This study presents a modified version of the repeated discounted prisoners’ dilemma with long and short-run players. In our setting a short-run player does not observe the history that has occurred before he was born, and survives into next phases of the game with a probability given by the current action profile in the stage game. Thus, even though it is improbable, a short-run player may live and interact with the long-run player for infinitely long amounts of time. In this model we prove that under a mild incentive condition on the stage game payoffs, the cooperative outcome path is not subgame perfect no matter how patient the players are. Moreover with an additional technical assumption aimed to provide a tractable analysis, we also show that payoffs arbitrarily close to that of the cooperative outcome path, cannot be obtained in equilibrium even with patient players. Journal of Economic Literature Classification Numbers: C72; C73; C79