Communication in Repeated Games with Costly Monitoring
with Michael Kahneman
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 payo. vector which is an interior point in the set of feasible and individually rational payo.s can be implemented in a sequential equilibrium of the repeated game when the discount factor is high enough. Thus, e.ciency can be approximated even when the cost of monitoring is high, provided that the discount factor is high enough.
Key words: Repeated games, costly monitoring, Communication.