Repeated game and governnance

Today’s class was so hard to follow. I did not know why, but I have understood the reason, lack of vocabulary.

Any way, today’s class was also interesting, as I feel now. Today’s topics were three: Institutional Change, Repeated Games, Organization of Punishment.

Institutional Change:
Expand Hold-up model to be followed one simple game. And assume connection between interactions is all in the players’ heads. In the game, there are many strategies. And the strategies can be written as (I, if E the T; if NE the T).

Repeated Games:
To repeat the institutional change, there is difference between outcome of finite game and infinite game. But, here, we calculate payoffs of infinite game. This shows possible value of δ(=discount factor), r(=immediate cost of punish), p(=imposed cost of robber).

Organization of punishment:
This is indication for revenge and third party’s enforcement to change rules. Of course, it is possible to reach effective equilibrium by revenge, but professional enforcement is reasonable because of its scale merit. It means professional enforcer easily sustain natural monopoly. And calculation shows the value of f(=fee for enforcer).

These shows the lessons: Better governance required several players changing their worldview, memory of past events, foresight that current actions will be remembered and shape behavior in the future. However, in the simple stationary environments, cooperation requires only a little memory and no foresight. Of course more complex situation needs more memory and anticipation or communications.