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A Tractable Analysis of Contagious Equilibria

Source:
Journal of Mathematical Economics, Vol. 50, pp. 290–300
Year:
2015
Authors:
Gabriele Camera,
Alessandro Gioffré
Reseach Area:
Macro Finance
Abstract:

This paper studies contagious equilibrium in infinitely repeated matching games. The innovation is to identify a key statistic of contagious punishment that, used together with a recursive formulation, generates tractable closed-form expressions for continuation payoffs, off equilibrium. This allows a transparent characterization of the dynamic incentives created by contagious punishment schemes.

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