but who will monitor the monitor suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations what about the monitor s deviations to address this question i propose a contract that makes the monitor responsible for monitoring and thereby provides incentives even when the monitor s observations are not only private but costly too i also characterize exactly when such a contract can provide monitors with the right incentives to perform in doing so i emphasize virtual enforcement and suggest its implications for the theory of repeated games jel c78 d23 d82 d86

multimarket contact imperfect monitoring and implicit collusion abstract this paper presents a theoretical foundation to the possibility that multimarket contact enhances firms ability to sustain implicit collusion when firms operate in a single market and cannot perfectly monitor their opponents choices it is impossible to achieve efficiency even if these firms have a long term strategic relationship we show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large efficiency can be approximately sustained by a perfect equilibrium this efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring journal of economic literature classification numbers c70 c72 c73 d43 l11 l22 l41

informational constraints and the overlapping generations model folk and anti folk theorems this paper analyses the sustainability of inter generational transfers in samuelson s consumption loan model when agents are imperfectly informed about past events we find that with mild informational constraints transfers cannot be supported by pure strategy equilibria mixed strategies allow transfers to be sustained even if agents have little information so that a version of the folk theorem holds however these equilibria are not robust if each agent s utility function is subjected to a small random perturbation as in harsanyi 1973 these mixed strategy equilibria unravel and only the zero transfer allocation survives as the unique rationalizable outcome this result is an example of mixed strategy equilibrium of an extensive form game which cannot be purified

are higher levels of inflation less predictable a state dependent conditional heteroscedasticity approach milton friedman proposed that there is a positive relationship between inflation and uncertainty about the future path of inflation in contrast to previous studies of this hypothesis we find strong statistical evidence that higher levels of inflation are less predictable although innovations in inflation are somewhat better predictors of future volatility than the actual level of inflation we argue that previous failures to find an inflation uncertainty relationship are due to two factors first none of the previous work directly tested friedman s hypothesis by including the level of inflation in the model of the conditional variance second these studies also used symmetric models which appears inconsistent with friedman s hypothesis our results are robust to different sample periods and to assumptions about the presence of a unit root in inflation to test the inflation uncertainty hypothesis we use state dependent models sdm s of conditional moments to estimate the time varying conditional v

moral hazard and private monitoring we clarify the role of mixed strategies and public randomization sunspots in sustaining near efficient outcomes in repeated games with private monitoring we study a finitely repeated game where the stage game has multiple equilibria and show that mixed strategies can support partial cooperation but cannot approximate full cooperation even if monitoring is almost perfect efficiency requires extensive form correlation where strategies can condition upon a sunspot at the end of each period for any finite number of repetitions we approximate the best equilibrium payoff under perfect monitoring assuming that monitoring is sufficiently accurate and sunspots are available journal of economic literature classification numbers c73 d82

rawlsian pricing of access to public facilities a unidimensional illustration abstract we consider a setting where citizens using a public facility face an idiosyncratic private access cost and must also contribute to the costs of facility we show that if the population is uniformly spread over the real line the cost of a facility is independent of location and access costs are linear in distance the rawlsian access pricing is the unique cost sharing solution that satisfies the core property of secession proofness the latter amounts to the voluntary participation principle under which no group of citizens should be charged more than the cost incurred if it had acted on its own

the effect of inflation targeting on the behavior of expected inflation evidence from an 11 country panel abstract inflation targets were introduced in the 1990s in australia canada new zealand sweden and the united kingdom change in the behavior of expected inflation in the five targeting countries is measured in a panel that includes six non targeting countries france germany italy the netherlands japan and the united states the level of expected inflation in targeting countries falls after the announcement of targets with controls for country effects year effects ongoing inflation reduction and the business cycle neither the variability of expected inflation nor the average absolute forecast error falls after the announcement of targets with controls for the level and variability of past inflation both targeting and non targeting countries experience unexpected disinflation

communication in repeated games with private monitoring abstract the paper considers repeated games where each player can be observed by only a subset of the other players and where players can make public announcements about the behavior of the players they observed we address the following question what is the minimal level of observability that is required to obtain efficient outcomes the main result is that the limit set of sequential equilibrium payoffs when the discount factor tends to one contains the set of individual rational payoffs whenever each player is observed by at leasttwoother players journal of economic literatureclassification number c73

basic research and productivity increase in manufacturing additional evi dence in a recent paper in this review edwin mansfield illustrated empirically using a sample of ten petroleum and six chemical firms that firm rates of productivity change are related to the amount of companyfinanced basic research performed certeris paribus in this note additional evidence is presented which is supportive of mansfield s findings this analysis is based on a sample of fifty one major manufacturing firms active in r d it is unique in that the impacts of company financeda nd governmentfinancedb asic researche xpendituresa re consideredd eterminantso f productivityg rowth the following model was estimated

repeated partnership games with imperfect monitoring and no discounting in a partnership game each player s utility depends on the other players actions through a commonly observed consequence e g output profit price which is itself a function of the players actions and an exogenous stochastic environment if a partnership game is repeated infinitely and each player s payoff in the infinite game supergame is the long run average of his expected one period utilities then efficient combinations of one period actions can be sustained as nash equilibria of the supergame even if the players cannot observe other players actions or information but can only observe the resulting consequences

empirical measures of inflation uncertainty a cautionary note a direct ex ante measure of inflation uncertainty in the us is compared with a number of proxies used in empirical studies the direct estimate is the root mean subjective variance of the probability distributions for inflation reported by respondents to the asa nber survey the proxies include forecast standard deviations from arima arch and structural models of inflation these proxies are not significantly correlated with the direct measure nor with one another use of the proxies leads to incorrect inferences about the correlation between inflation and inflation uncertainty and between inflation uncertainty and the real interest rate

inflation and inflation uncertainty in turkey this article investigates the relationship between inflation and inflation uncertainty and the impact of monetary policy on this relationship using monthly turkish inflation data over january 1984 to october 2005 the results from various types of garch m models indicate that higher inflation rates lead to greater inflation uncertainty on the other hand the effect of inflation uncertainty on inflation is found to be negative due to stabilization motives dominating the opportunistic incentives of monetary authorities we find strong evidence to support the view that inflation oriented monetary policy has power to reduce the inflation persistence and eliminate uncertainty

nash equilibria of repeated games with observable payoff vectors abstract we study a model of repeated games with imperfect monitoring where the payoff vector is observable in this situation any profitable deviation is detectable by all the players but the identity of the deviator may be unknown we design collective punishments directed against the set of potential deviators a particular class of signals is studied for which a characterization of the set of equilibrium payoffs is obtained journal of economic literature classification numbers c73

existence of nontrivial equilibria in repeated games with imperfect private monitoring abstract we consider finitely repeated games with imperfect private monitoring and provide several sufficient conditions for such a game to have an equilibrium whose outcome is different from repetition of nash equilibria of the stage game surprisingly the conditions are consistent with uniqueness of the stage game equilibrium a class of repeated chicken is shown to satisfy the condition

efficiency results in n player games with imperfect private monitoring abstract we demonstrate that efficiency is achievable in a certain class of n player repeated games with private almost perfect monitoring our equilibrium requires only one period memory and can be implemented by two state automata furthermore we show that this efficiency result holds with any degree of accuracy of monitoring if private signals are hemiindependent whereas most existing research focuses on two player cases or only a special example of n player games our results are applicable to a wide range of n player games of economic relevance such as trading goods games and price setting oligopolies

the impact of r d on productivity increase in japanese manufacturing companies abstract this paper estimates the impact of r d expenditures as a ratio to value added on the rate of total factor productivity increase using the data of 135 to 168 japanese manufacturing companies in each of two periods period i 1966 73 and period ii 1974 82 the rate of return on r d stock is estimated at 20 percent in period i and 17 percent in period ii but is found to decrease when industrial intercept dummies or the rate of deflated sales growth is added as an explanatory variable which is interpreted as suggesting the inter industry differences in the rate of exogenous technical progress and the existence of a learning effect interindustry differences in the rate of return on r d are also investigated

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

perfect public equilibrium when players are patient we provide a characterization of the limit set of perfect public equilibrium payoffs of repeated games with imperfect public monitoring as the discount factor goes to one our result covers general stage games including those that fail a full dimensionality condition that had been imposed in past work it also provides a characterization of the limit set when the strategies are restricted in a way that endogenously makes the full dimensionality condition fail as in the strongly symmetric equilibrium studied by abreu abreu d 1986 extremal equilibria of oligopolistic supergames j econ theory 39 191 228 and abreu et al abreu d pearce d stacchetti e 1986 optimal cartel equilibria with imperfect monitoring j econ theory 39 251 269 finally we use our characterization to give a sufficient condition for the exact achievability of first best outcomes equilibria of this type for which all continuation payoffs lie on the pareto frontier have a strong renegotiation proofness property regardless of the history players can never unanimously prefer another equilibrium

research activity output growth and productivity increase in japanese manufacturing industries abstract the contribution of r d expenditures to the productivity increase in japanese manufacturing industries is investigated with a popular single equation approach this contribution was found to be not only significant in all of the three periods 1960 1966 1966 1973 and 1973 1977 but also to exceed that estimated for the united states however when a simulataneous equations approach was used to allow for an interaction between the learning effect output growth enhancing productivity increase through the accumulation of experience and the price effect productivity increase stimulating output growth through a declining price the results suggested not only the importance of these two effects but also the over evaluation of the contribution of r d in the usual ordinary least squares estimation

collusion with almost no information we analyze noncooperative collusion in an infinitely repeated bertrand game where each of the n firms receives a privately observed i i d cost shock in each period and firms only and privately observe whether they have won the unit mass of consumers no other information is available and no communication is allowed we prove that there exist equilibria in private strategies approximating first best profits when firms are sufficiently patient in particular productive efficiency obtains in the limit

collusion and price rigidity we consider an in nitely repeated bertrand game in which prices are publicly observed and each rm receives a privately observed i i d cost shock in each period we focus on symmetric perfect public equilibria sppe wherein any punishments are borne equally by all rms we identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each rm is strictly increasing in its cost level such fully sorting schemes offer efficiency bene ts as they ensure that the lowest cost rm makes the current sale but they also imply an informational cost distorted pricing and or equilibrium path price wars since a higher cost rm must be deterred from mimicking a lower cost rm by charging a lower price a rigid pricing scheme where a rm s collusive price is independent of its current cost position sacri ces efficiency bene ts but also diminishes the informational cost for a wide range of settings the optimal symmetric collusive scheme requires i the absence of equilibrium path price wars and ii a rigid price if rms are sufficiently impatient however the rigid pricing scheme cannot be enforced and the collusive price of lower cost rms may be distorted downward in order to diminish the incentive to cheat when the model is modi ed to include i i d public demand shocks the downward pricing distortion that accompanies a rm s lower cost realization may occur only when current demand is high

beliefs and private monitoring this paper develops new recursive set based methods for studying repeated games with private monitoring for any nite state strategy prole we nd necessary and sucient conditions for whether there exists a distribution over initial states such that the strategy together with this distribution form a correlated sequential equilibrium also for any given correlation device for determining initial states including degenerate cases where players initial states are common knowledge we provide necessary and sucient conditions for the correlation device and strategy to be a correlated sequential equilibrium or in the case of a degenerate correlation device for the strategy to be a sequential equilibrium we also consider several applications in these we show that the methods are computationally feasible show how to construct and verify equilibria in a secret price setting game

analysing inflation by the fractionally integrated arfima garch model this paper considers the application of long memory processes to describing inflation for ten countries we implement a new procedure to obtain approximate maximum likelihood estimates of an arfima garch process which is fractionally integrated i d with a superimposed stationary arma component in its conditional mean additionally this long memory process is allowed to have garch type conditional heteroscedasticity on analysing monthly post world war ii cpi inflation for ten different countries we find strong evidence of long memory with mean reverting behaviour for all countries except japan which appears stationary for three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the friedman hypothesis

renegotiation and conflict resolution in relational contracting abstract renegotiation and conflict resolution are studied in relational contracting under subjective evaluation renegotiation has three effects first it makes the incentive pay scheme low powered the maximum variation of compensation across performance levels is compressed and the contract is less extreme compared to the case without renegotiation this effect is stronger when the players are less patient second renegotiation typically renders termination impossible the contract relies on a low morale mechanism to enforce mutual cooperation finally renegotiation compels the players to resolve their conflicts by selecting a contract that maximizes the lowest possible surplus along the path of the contract

contracting with repeated moral hazard and private evaluations a repeated moral hazard setting in which the principal privately observes the agent s output is studied the optimal contract for a finite horizon is characterized and shown to require burning of resources these are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor for the infinite horizon it is shown that there is no loss from restricting the analysis to contracts in which the agent receives a constant efficiency wage and no feedback until he is fired furthermore optimal contracts cannot be replicated by short term contracts a family of fixed interval review contracts is characterized longer review intervals are preferable but harder to implement comparative statics on the review length are carried out finally these contracts are shown approximate first best if players are very patient jel d82 d86

asymmetry of customer loss and recovery under endogenous partnerships theory and evidence this article is inspired by real world phenomena that firms lose customers based on imprecise information and take a long time to recover if consumers are playing an ordinary repeated game with fixed partners there is no clear reason why recovery happens slowly however if consumers are playing an endogenously repeated game a class of simple efficient equilibria exhibits the asymmetry of fast loss and slow recovery of customers after a bad signal exit is systematic but formation of a new partnership is random we also give empirical evidence of our equilibria at an individual firm level

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

a belief based approach to the repeated prisoners dilemma with asymmetric private monitoring abstract this paper extends the belief based approach to the repeated prisoners dilemma with asymmetric private monitoring we first find that the previous belief based techniques t sekiguchi efficiency in repeated prisoners dilemma with private monitoring j econ theory 76 1997 345 361 v bhaskar i obara belief based equilibria in the repeated prisoners dilemma with private monitoring j econ theory 102 2002 40 69 cannot succeed when players private monitoring technologies are sufficiently different we then modify the previous belief based approach by letting the player with smaller observation errors always randomize between cooperate and defect along the cooperative path of the play we show that with vanishing observation errors efficiency and a folk theorem can be approximated using our modified belief based strategies

individual learning and cooperation in noisy repeated games we investigate whether two players in a long run relationship can maintain cooperation when the details of the underlying game are unknown specifically we consider a new class of repeated games with private monitoring where an unobservable state of the world influences the payoff functions and or the monitoring structure each player privately learns the state over time but cannot observe what the opponent learned we show that there are robust equilibria in which players eventually obtain payoffs as if the true state were common knowledge and players played a belief free equilibrium we also provide explicit equilibrium constructions in various economic examples copyright 2014 oxford university press

re examining inflation and inflation uncertainty in developed and emerging countries abstract this paper examines the relationship between inflation and inflation uncertainty for both developed and emerging countries we find new evidence that suggests positive inflationary shocks have stronger impacts on inflation uncertainty for mainly latin american countries

strategic buyers and privately observed prices a model of finitely repeated price competition between two sellers with differentiated goods and a large buyer is analyzed the set of pure strategy sequential equilibria is investigated under public and private monitoring with private monitoring i e when prices are not observable to the competing sellers all sales are made by the better seller and the set of repeated game equilibrium payoffs coincides with the stage game subgame perfect equilibrium payoffs this is in sharp contrast to the game with perfect monitoring where the folk theorem obtains journal of economic literature classification numbers c72 d43

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

robustness of public equilibria in repeated games with private monitoring a repeated game with private monitoring is close to a repeated game with public monitoring or perfect monitoring when i the expected payoff structures are close and ii the informational structures are close in the sense that private signals in the private monitoring game can be aggregated by some public coordination device to generate a public signal whose distribution is close to the distribution of the public signal in the public monitoring game we provide a sufficient condition for the set of uniformly strict perfect public equilibria for a public monitoring game to be robust in nearby private monitoring games in the sense that they remain equilibria with respect to the public signal that is generated by such public coordination devices with truthful reporting our sufficient condition requires that every player is informationally small in a well defined sense

on failing to cooperate when monitoring is private abstract i consider a repeated prisoners dilemma where in each period each player receives an imperfect private signal about his opponent s current action i show that when players are patient enough any equilibrium where players use trigger strategies i e do not revert to cooperation once they have started defecting yields players a value arbitrarily close to the mutual minimax i also examine the robustness of the result to perturbations of the game journal of economic literature classification numbers c72

relationship between inflation rate and inflation uncertainty abstract to shed further light on the possible link between inflation rate and inflation uncertainty the paper explores the relationship for us monthly inflation over 1926 to 1992 with various arfima garch type models it found that the inflation affected its uncertainty weakly negatively whereas the uncertainty affected the inflation insignificantly the results were robust to the high inflation period of the 1970s and the volatile period of 1929 to 1945 it supports engle s result that a high rate of inflation does not necessarily imply a high variance of inflation unlike friedman s view that a high rate of inflation leads to a high variance of inflation

cooperation but no reciprocity individual strategies in the repeated prisoner s dilemma a recent advance in our understanding of repeated pds is the detection of a threshold d at which laboratory subjects start to cooperate predictively this threshold is substantially above the classic threshold existence of grim equilibrium and has been characterized axiomatically by blonski ockenfels and spagnolo 2011 bos in this paper i derive its behavioral foundations first i show that the threshold is equivalent to existence of a semi grim equilibrium s cc s cd s dc s dd it is cooperative s cc 0 5 non reciprocal s cd s dc and robust to imperfect monitoring belief free next i show that the no reciprocity condition s cd s dc also follows from robustness to random utility perturbations logit equilibrium finally i re analyze strategies in four recent experiments and find that the majority of subjects indeed plays semi grim when it is an equilibrium strategy which explains d s predictive success

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

the making of the turkish financial crisis abstract at the turn of the century the turkish economy was in need of an urgent stabilization in order to halt a treacherous process of inflation unsustainable public debt accumulation and increasing financial fragility resulting from irresponsible policies and lack of fiscal discipline that had been endemic since the early 1980s the stabilization program launched with support from the imf has however failed to deliver its promises plunging the economy into an unprecedented recession largely because of serious shortcomings in its design as well as in crisis intervention which appears to have drawn no useful lessons from recent crises in emerging markets

private monitoring in auctions abstract we study infinitely repeated first price auctions in which a bidder only learns whether or not he won the object while repetition of the stage game equilibrium is the unique nash equilibrium in public strategies with patient bidders there are simple nash equilibria in private strategies that improve on bid rotation sequential rationality is appropriately captured by essentially perfect bayesian equilibrium epbe which ignores behavior after irrelevant histories our main result is the construction of epbea that improve upon bid rotation assuming symmetry the exclusionary schemes of skrzypacz and hopenhayn tacit collusion in repeated auctions j econ theory 114 2004 153 169 including asymptotically efficient ones are supported as epbea

the allocation of future business dynamic relational contracts with multiple agents we consider how a firm dynamically allocates business among several suppliers to motivate them in a relational contract the firm chooses one supplier who exerts private effort output is non contractible and each supplier observes only his own relationship with the principal in this setting allocation decisions constrain the transfers that can be promised to suppliers in equilibrium consequently optimal allocation decisions condition on payoff irrelevant past performance to make strong incentives credible we construct a dynamic allocation rule that attains first best whenever any allocation rule does this allocation rule performs strictly better than any rule that depends only on payoff relevant information

cooperation with network monitoring this paper studies the maximum level of cooperation that can be sustained in perfect bayesian equilibrium in repeated games with network monitoring where players observe each other s actions either perfectly or not at all the foundational result is that the maximum level of cooperation can be robustly sustained in grim trigger strategies if players are equally well monitored comparative statics on the maximum level of cooperation are highly tractable

efficiency in partnerships with joint monitoring abstract this paper examines deterministic partnerships where a single partner observes the actions taken by a subset of the other partners and issues a report conditional on that observation no other partner has any additional information in such a model whenever the observing partner can see the action chosen by at least one other partner the efficient action vector can be sustained in a perfect bayesian equilibrium by sharing rule that exhibits budget balance and limited liability journal of economic literature classification numbers c7 d7 d8 l2

discovering the link between inflation rates and inflation uncertainty a new time series model is used to reassess the strength of the link between inflation uncertainty and the level of inflation in the united states the model provides several statistical measures that can be used to examine different aspects of uncertainty the main finding is that uncertainty about the long rather than short term prospects for inflation moved strongly with the rate of inflation since the early 1970s copyright 1991 by ohio state university press

a robust folk theorem for the prisoner s dilemma we prove the folk theorem for the prisoner s dilemma using strategies that are robust to private monitoring from this follows a limit folk theorem when players are patient and monitoring is sufficiently accurate but private and possibly independent any feasible individually rational payoff can be obtained in sequential equilibrium the strategies used can be implemented by finite randomizing automata journal of economic literature classification numbers c72 c73 d82

private monitoring and communication in cartels explaining recent collusive practices motivated by recent cartel practices a stable collusive agreement is characterized when firms prices and quantities are private information conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports the properties of this equilibrium fit well with the cartel agreements used in a number of markets including citric acid lysine and vitamins

the negative side of inflation targeting revisiting inflation uncertainty in the emu this article tests the friedman ball hypothesis for the european monetary union emu countries using a garch methodology the empirical results show a positive relationship between inflation and

a monopolistic and oligopolistic stochastic flow revenue management model this paper studies a one shot inventory replenishment problem with dynamic pricing the customer arrival rate is assumed to follow a geometric brownian motion homogeneous customers have an isoelastic demand function and do not behave strategically we find a closed form optimal pricing policy which utilizes current demand information under this pricing policy the inventory trajectory is deterministic and a retailer sells all inventory we show that dynamic pricing coordinated with the inventory decision achieves significantly higher profits than does static pricing furthermore under oligopolistic competition we establish a weak perfect bayesian equilibrium for the price and inventory replenishment game we find the pricing equilibrium to be cooperative even in a noncooperative environment but that inventory competition results in overstock and damages profits finally we examine the trade off between dynamic pricing and price precommitment and find that flexible pricing is still beneficial provided competition is not too intense

the relationship between inflation and inflation uncertainty in the uk 1885 1998 abstract using a long series of uk inflation data i have provided strong evidence in favour of the hypothesis that inflationary periods are associated with high inflation uncertainty this result supports the friedman ball hypothesis and has important implications for the inflation output relationship provided that more inflation uncertainty leads to lower output

the folk theorem for repeated games with observation costs abstract the folk theorem literature has been relaxing the assumption on how much players know about each other s past action here we consider a general model where players can buy precise information every period each player decides whether to pay a cost to accurately observe the actions chosen by other players in the previous period when a player does not pay the cost he obtains only imperfect private signals observational decisions are unobservable to others known strategies such as trigger strategies do not work since they fail to motivate players to pay for information this paper shows that the folk theorem holds for any level of observation costs unlike existing folk theorems with private monitoring ours imposes virtually no restriction on the nature of costless imperfect signals the theorem does not use explicit or costless communication thereby having implications on antitrust laws that rely on evidence of explicit communication the main message is that accurate observation alone however costly enables efficient cooperation in general repeated games

a limit characterization of belief free equilibrium payoffs in repeated games abstract the present paper studies repeated games with private monitoring and characterizes the set of belief free equilibrium payoffs in the limit as the discount factor approaches one and the noise on private information vanishes contrary to the conjecture by ely et al j c ely j horner w olszewski belief free equilibria in repeated games econometrica 73 2005 377 415 the equilibrium payoff set is computed by the same formula no matter how many players there are as an application of this result a version of the folk theorem is established for n player prisoner s dilemma games

perfect communication equilibria in repeated games with imperfect monitoring this paper introduces an equilibrium concept called perfect communication equilibrium for repeated games with imperfect private monitoring this concept is a refinement of myerson s myerson r b 1982 optimal coordination mechanisms in generalized principal agent problems j math econ 10 67 81 communication equilibrium a communication equilibrium is perfect if it induces a communication equilibrium of the continuation game after every history of messages of the mediator we provide a characterization of the set of corresponding equilibrium payoffs and derive a folk theorem for discounted repeated games with imperfect private monitoring

credible communication in dynastic government abstract this paper studies information disclosure in a model of dynastic government when information about past policy choices comes exclusively from the reports of previous administrations each administration has an incentive to choose its suboptimal one shot expenditure policy and then misrepresent its choice to its successor consequently it has been suggested that horizontal accountability i e a system of governance where auditing functions lie outside the executive branch can ensure credible disclosure of a government s activities this paper suggests a cautious approach to that view the baseline model examines the reporting incentives of an external auditor who can independently verify the information each period even with auditing credible disclosure is shown to be problematic various extensions to this baseline model are examined in one extension liberal i e those prefering larger government expenditures and conservative those prefering smaller expenditures regimes and auditors evolve over time it is shown that conservative liberal auditors are not credible when the current regime is also conservative liberal moreover because information transmission stops when the auditor s and the regime s biases coincide effective deterrents even in the good periods when the auditor s and the administration s biases differ are difficult to construct in all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices these constraints are shown to bind away from optimal policies in standard constructions of equilibrium various ways in which auditing protocols can overcome these problems are discussed

introduction to repeated games with private monitoring abstract we present a brief overview of recent developments in discounted repeated games with imperfect private monitoring the literature explores the possibility of cooperation in a long term relationship where each agent receives imperfect private information about the opponents actions although this class of games admits a wide range of applications such as collusion under secret price cutting exchange of goods with uncertain quality and observation errors it has fairly complex mathematical structure due to the lack of common information shared by players this is in sharp contrast to the well explored case of repeated games under public information with the celebrated folk theorems and until recently little had been known about the private monitoring case however rapid developments in the past few years have revealed the possibility of cooperation under private monitoring for some class of games journal of economic literature classification numbers c72 c73 d43 d82 l13 l41

optimal contracting with subjective evaluation this paper extends the standard principal agent model to allow for subjective evaluation the optimal contract results in more compressed pay relative to the case with verifiable performance measures moreover discrimination against an individual implies lower pay and performance suggesting that the extent of discrimination as measured after controlling for performance may underestimate the level of true discrimination finally the optimal contract entails the use of bonus pay rather than the threat of dismissal hence neither efficiency wages nor the right to dismiss an employee are necessary ingredients for an optimal incentive contract

inflation uncertainty and labour market conditions in the us recent inflation dynamics in the united states us questioned the role of driving forces of inflation in the long run although the us recorded one of the longest economic recovery periods and the

unmediated communication in repeated games with imperfect monitoring we show that any correlated equilibrium payoff of two player repeated games with imperfect monitoring and without discounting can be reached as the nash equilibrium payoff of the game extended by a universal mechanism of unmediated communication this result holds regardless the particular concept of equlibrium involved upper lower banach or uniform equlibrium the communication mechanism is built up by using commutative one way functions these functions are designed with the help of cryptographic tools

repeated games with private monitoring two players we investigate two player infinitely repeated games where the discount factor is less than but close to unity monitoring is private and players cannot communicate we require no condition concerning the accuracy of players monitoring technology we show the folk theorem for the prisoners dilemma with conditional independence we also investigate more general games where players private signals are correlated only through an unobservable macro shock we show that efficiency is sustainable for generic private signal structures when the size of the set of private signals is sufficiently large finally we show that cartel collusion is sustainable in price setting duopoly

collective reputation social norms and participation this paper analyzes a repeated games model of collective reputation with imperfect public monitoring and perfect local peer monitoring of efforts even when peer monitoring is local firms may achieve higher profits under collective reputation by decreasing the cost of maintaining customers trust the optimal number of firms that share a common reputation is greater when 1 trades are more frequent and public information is disseminated more rapidly 2 the deviation gain is smaller compared to the quality premium 3 customers information regarding firms quality is more precise or 4 intragroup information about firms quality is more global from a positive perspective we suggest how social norms can influence the reputation of regional products we also offer an efficiency explanation for food scares from a normative point of view in our model protection of geographical indications increases and mandatory traceability decreases welfare and incentives to provide quality without taking into account direct implementation costs copyright 2012 oxford university press

collusion in dynamic bertrand oligopoly with correlated private signals and communication abstract this paper studies collusion in repeated bertrand oligopoly when stochastic demand levels for the product of each firm are their private information and are positively correlated it derives general sufficient conditions for efficient collusion through communication and a simple grim trigger strategy this analysis is then applied to a model where the demand signal has multiple random components which respond differently to price deviations in this model it is shown that the above sufficient conditions hold if idiosyncratic noise terms are sufficiently small journal of economic literature classification numbers c72 d82

how to organize crime in criminal organizations diffusing information widely throughout the organization might lead to greater internal efficiency in particular since these organizations are self sustaining through enhancing trust however this may come at the cost of leaving the organization more vulnerable to external threats such as law enforcement we consider the implications of this trade off and characterize the optimal information structure rationalizing both hierarchical structures and organization in cells then we focus on the role of the external authority characterize optimal detection strategies and discuss the implications of different forms of enforcement on the internal structure of the organization and policy finally we discuss a number of applications and extensions in this paper we study the interplay between trust within an illegal organization and its vulnerability to the authorities illegal organizations function more effectively when the people who constitute them trust each other we argue that information sharing is an important factor in building internal trust and cohesion but that can leave the organization vulnerable understanding how this trade off affects an organization s information structure and productivity can allow us to assess detection policies designed to destabilize such organizations since 9 11 the u s congress has passed a 400 billion annual budget for the war on terror new domestic institutions have been created or enhanced among many others the counterterrorism section at the u s department of justice s criminal division international intelligence cooperation has been strengthened and new protocols and controversial legal tools such as the patriot act have been developed however these new agencies and institutions face the same basic questions that have challenged the prosecutors fighting organized crime in italy south america and eastern asia as well as authorities fighting terrorism all over the world now and in the past how can we learn about the internal structure of criminal organizations how should we go about investigating a criminal organization in order to break its internal cohesion how does a criminal organization react to investigation policies we highlight the fact that simply understanding the information links within an organization gives us insight into addressing these questions the anecdotal evidence suggests that there is a wide heterogeneity across the information structures of different criminal organizations the most credited theory about the mafia developed in the early 1990 s has identified the so called cupola as the highest level of the organization supposedly consisting of agents who hold large amounts of information about the organization itself and carry out the enforcement needed for the organization to function 2 these crucial agents are shielded from the authorities since they are typically not directly involved in criminal activities this theory suggests a centralized information and enforcement structure 1 previous drafts have circulated under the titles power and organizational structure under an external threat

the repeated prisoner s dilemma with imperfect private monitoring abstract in this paper i study a repeated prisoner s dilemma game in which monitoring is private and imperfect a partial folk theorem is proved for the case of almost perfect monitoring

belief based equilibria in the repeated prisoners dilemma with private monitoring abstract we analyze repeated prisoners dilemma games with imperfect private monitoring and construct mixed trigger strategy equilibria such strategies have a simple representation where a player s action only depends upon her belief that her opponent s are continuing to cooperate when monitoring is almost perfect the symmetric efficient outcome can be approximated in any prisoners dilemma game while every individually rational feasible payoff can be approximated in a class of such games the efficiency result extends when there are more than two players it requires that monitoring be sufficiently accurate but does not require very low discounting when a public randomization device is available journal of economic literature classification numbers c73 d82

how robust is the folk theorem the folk theorem of repeated games has established that cooperative behavior can be sustained as an equilibrium in repeated settings early papers on private monitoring and a recent paper of cole and kocherlakota games and economic behavior 53 2005 59 72 challenge the robustness of this result by providing examples in which cooperation breaks down when players observe only imperfect private signals about other players actions or when attention is restricted to strategies with finite memory this paper shows that cole and kocherlakota s result is an artefact of a further restriction that they impose we prove that the folk theorem with imperfect public monitoring holds with strategies with finite memory as a corollary we establish that the folk theorem extends to environments in which monitoring is close to public yet private

on sustaining cooperation without public observations abstract this paper examines a dynamic game in which each player only observes a private and imperfect signal on the actions played our main result is that in a repeated prisoner s dilemma where defections are irreversible at least for a long enough period of time patient enough players may achieve almost efficient outcomes dealing with models of imperfect private monitoring is difficult because i continuation games are games of incomplete information hence they do not have the same structure as the original game in particular continuation equilibria are correlated equilibria ii players are typically uncertain about their opponents past observations and actions and they use their entire own private history to learn about these actions as a result equilibrium strategies are in general nontrivial and increasingly complex functions of past observations we bypass these difficulties by looking at correlated equilibria of the original game and find correlated equilibria in which the decision problem faced by each player remains the same over time journal of economic literature classification numbers c72

communication in repeated games with costly monitoring abstract we study repeated games with discounting where perfect monitoring is possible but costly it is shown that if players can make public announcements then every payoff vector which is an interior point in the set of feasible and individually rational payoffs can be implemented in a sequential equilibrium of the repeated game when the discount factor is high enough thus efficiency can be approximated even when the cost of monitoring is high provided that the discount factor is high enough

natural resources and the tradeoff between authoritarianism and development abstract why do african and middle eastern countries seem cursed by an abundance of natural resources yet usa australia and norway seem blessed a growing literature has argued that the benevolence or malignance of natural resources depends upon the quality of institutions this paper offers a new explanation based on associational freedom and its interaction with the political system the model predicts that natural resources have an adverse impact on economic performance and transition to democracy in authoritarian regimes but not in democracies it also predicts that repression of associational freedom will be increasing in natural resources in authoritarian regimes i test the model s predictions using fixed effects regressions on an international panel from 1975 to 2000 and find support

on the real effects of inflation and inflation uncertainty in mexico we estimate an augmented multivariate garch m model of inflation and output growth for mexico at business cycle frequencies the main findings are 1 inflation uncertainty has a negative and significant effect on growth 2 once the effect of inflation uncertainty is accounted for lagged inflation does not have a direct negative effect on output growth 3 however as predicted by friedman and ball higher average inflation raises inflation uncertainty and the overall net effect of average inflation on output growth in mexico is negative that is average inflation is harmful to mexican growth due to its impact on inflation uncertainty 4 the mexican presidential election cycle significantly raises inflation uncertainty both during the year of the election and the year following the election which has correspondingly negative effects on output growth

inflation and uncertainty tests for temporal ordering for the postwar united states increases in the rate of inflation tend to precede increases in the level of inflation uncertainty the finding suggests that higher inflation uncertainty is part of the welfare cost of inflation possible explanations are 1 a high rate of inflation increases uncertainty about future monetary policy and 2 there is uncertainty about the persistence of inflation copyright 1995 by ohio state university press

efficiency in repeated prisoner s dilemma with private monitoring abstract this paper analyzes repeated games with private monitoring where in each period each player receives a signal of the other player s action in the previous period and that signal is private information previous literature on discounted repeated games with private monitoring has not shown whether or not nearly efficient equilibria exist for a repeated prisoner s dilemma satisfying a certain assumption regarding stage game payoffs we show that there exists a nearly efficient sequential equilibrium provided that imperfectness of signals is small and players are patient journal of economic literature classification number c73