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Article
Cooperation in Stochastic OLG Games
Journal of Economic Theory (2003)
  • Mattias K Polborn
  • Matthias Messner, Bocconi University
Abstract
This paper builds on Cremer's (1986) seminal analysis which shows that (almost) complete cooperation can be achieved as an equilibrium in a game played by overlapping generations of players if the institution in which players cooperate is infinitely lived. We analyze a similar model in which the costs of cooperation are subject to random shocks. Even if these random shocks are very small, the range of parameters for which cooperation can be sustained decreases considerably in comparison to the deterministic case. Furthermore, we show how the efficient outcome can be approximated if the level of cooperation can be varied continuously and the cooperation technology has decreasing or constant returns to scale, while this is not possible in the case of increasing returns to scale.
Disciplines
Publication Date
February, 2003
Citation Information
Mattias K Polborn and Matthias Messner. "Cooperation in Stochastic OLG Games" Journal of Economic Theory Vol. 108 (2003)
Available at: http://works.bepress.com/polborn/10/