We Can Cooperate Even When the Monitoring Structure Will Never Be Known

Abstract

This paper considers infinite-horizon stochastic games with hidden states and hidden actions. The state changes over time, players observe only a noisy public signal about the state each period, and actions are private information. In this model, uncertainty about the monitoring structure does not disappear. We show how to construct an approximately efficient equilibrium in a repeated Cournot game. Then we extend it to a general case and obtain the folk theorem using ex-post equilibria under a mild condition.

Keywords: stochastic game, hidden state, public monitoring, pseudo-ergodic strategy, folk theorem, ex-post equilibrium

JEL Classification: C72, C73.