Monitoring and Heterogeneity in Dynamic Games

In this thesis we study the impact of monitoring and heterogeneity on the set of equilibria of dynamic games. In Chapter 1 we show how heterogeneity in time preferences can help create new intertemporal incentives. Proving the folk theorem in a game with three or more players usually requires imposing restrictions on the dimensionality of the stage-game payoffs. Considering a class of games in which those restrictions do not hold, we show how to recover a folk theorem by allowing time preferences to vary across players. In Chapters 2 and 3 we show how a small degree of imperfection in the monitoring technology can have large effects on the set of equilibria of dynamic games. We study a dynamic voluntary contribution game with irreversibility and a game with an asymptotically finite horizon. In both settings, when monitoring is perfect, players can cooperate and obtain payoffs in the repeated game that are strictly greater than the payoffs from the unique inefficient stage-game equilibrium. We show however that introducing an arbitrarily small amount of noise in the monitoring technology can cause a complete breakdown in cooperation. Finally in Chapter 4 we investigate how information is transmitted in a revision game with one-sided incomplete information. Players aim to coordinate on an action which depends on an unknown state of the world and players can only revise their actions stochastically during a preparation stage, at the end of which the prepared action profile is implemented. Miscoordination arises from the possibility of no longer receiving revision opportunities until the deadline. We show that close to the deadline no information is transmitted and that far from the deadline the uninformed player prefers to be miscoordinated

Incentives for Collective Innovation

Identical agents exert hidden effort to produce randomly-sized improvements in a technology they share. Their payoff flow grows as the technology develops, but so does the opportunity cost of effort, due to a resource trade-off between using and improving the technology. The game admits a unique strongly symmetric equilibrium, and it is Markov; that is, no form of punishment is sustainable. Moreover, in this equilibrium, small innovations may hurt all agents as they severely reduce effort. Allowing each agent to discard the innovations she produces (after observing their size) increases equilibrium effort and welfare. If agents can instead conceal innovations for a period of time, there exists an equilibrium in which improvements are refined in secret until they are sufficiently large, and progress stops after a single disclosure. Although concealment is inefficient due to forgone benefits and the risk of redundancy, under natural conditions, this equilibrium induces higher welfare than all equilibria with forced disclosure