Perfect Versus Imperfect Monitoring in Repeated Games

We show that perfect monitoring is not necessarily the optimal monitoring technology in repeated games, unless players are both patient and have access to a mediator who can condition her recommendations on the entire history of actions and recommendations. This claim follows from three results. First, players can be better o¤ with unmediated imperfect (public or private) monitoring than with mediated perfect monitoring. Second, the folk theorem holds with mediated perfect monitoring without any full-dimensionality conditions, so imperfect monitoring cannot improve on mediated perfect monitoring when players are patient. Third, if the mediator can condition her recommendations on actions only, then even patient players can bene…t from imperfect monitoring.