Courts of Law and Unforeseen Contingencies

We study a contracting model with unforeseen contingencies inwhich the court is an active player. Ex ante, the contractingparties cannot include the risky unforeseen contingencies inthe contract they draw up. Ex post, the court observes whetheran unforeseen contingency occurred and decides whether to voidor uphold the contract. If the contract is voided by the court,the parties can renegotiate a new agreement ex post. There aretwo effects of a court that voids contracts. The parties' incentivesto undertake relationship-specific investment are reduced, andthe parties enjoy greater insurance against the unforeseen contingenciesthat the ex ante contract cannot account for. In this context,we fully characterize the optimal decision rule for the court.The behavior of the optimal court is determined by the trade-offbetween the need for incentives and the gains from insurancethat voiding in some circumstances offers to the agents.     

中国财政刺激将经济拉出低谷？

【英国《金融时报》4月17日】即便中国第一季度国内生产总值（GDP）数据是近20年来最糟糕的,但16日发布的一批新数据显示,政府的大笔支出,使中国经济脱离了最严重的低迷阶段。     

Path Dependence and Learning from Neighbors

We study the long-run properties of a class of locally interactive learning systems. A finite set of players at fixed locations play a two-by-two symmetric normal form game with strategic complementarities, with one of their “neighbors” selected at random. Because of the endogenous nature of experimentation, or “noise,” the systems we study exhibit a high degree of path dependence. Different actions of a pure coordination game may survive in the long-run at different locations of the system. A reinterpretation of our results shows that the local nature of search may be a robust reason for price dispersion in a search model,Journal of Economic LiteratureClassification Numbers: C72, D83.     

Social memory,evidence, and conflict

This paper examines an equilibrium model of social memory — a society's vicarious beliefs about its past. We show that incorrect social memory is a key ingredient in creating and perpetuating destructive conflicts.We analyze an infinite-horizon model in which two countries face off each period in a game of conflict characterized by the possibility of mutually destructive “all out war” that yields catastrophic consequences for both sides. Each country is inhabited by a dynastic sequence of individuals. Each individual cares about future individuals in the same country, and can communicate with the next generation of their countrymen using private messages. Social memory is based on these messages, and on physical evidence — a sequence of imperfectly informative public signals of past behavior. We find that if the future is sufficiently important for all individuals, then regardless of the precision of physical evidence from the past there is an equilibrium in which the two countries engage in all out war with arbitrarily high frequency, an outcome that cannot arise in the standard repeated game. In our construction, each new generation “repeats the mistakes” of its predecessors, leading to an endless cycle of destructive behavior.Surprisingly, we find that degrading the quality of information that individuals have about current decisions may “improve” social memory. This in turn ensures that arbitrarily frequent all out wars cannot occur.     

北京慎对经济复苏迹象

越来越多的迹象显示,得益于政府的刺激计划,中国经济已开始复苏。该计划的资金主要来自于国有银行体系。预计政府周四将公布,第一季度国内生产总值（GDP）增长6％-7％。     

蒙牛乳业改组：国进民退？

牛根生白手起家创建了蒙牛，并已成为民营企业家在以国营企业为主的经济中如何成功的一个象征。但近期，他将蒙牛20％的股权出售给了由中国最大的食品进出口公司、国有的中粮集团（COFCO）牵头的一个财团。有分析师认为，这是一个最新实例，显示中国经济一些领域正悄悄发生再国有化。     

A “Super” Folk Theorem for dynastic repeated games

We analyze dynastic repeated games. These are repeated games in which the stage game is played by successive generations of finitely-lived players with dynastic preferences. Each individual has preferences that replicate those of the infinitely-lived players of a standard discounted infinitely-repeated game. Individuals live one period and do not observe the history of play that takes place before their birth, but instead create social memory through private messages received from their immediate predecessors. Under mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax of the stage game) can be sustained by sequential equilibria of the dynastic repeated game with private communication. In particular, the result applies to any stage game with n  ≥  4 players for which the standard Folk Theorem yields a payoff set with a non-empty interior. We are also able to characterize fully the conditions under which a sequential equilibrium of the dynastic repeated game can yield a payoff vector not sustainable as a subgame perfect equilibrium of the standard repeated game. For this to be the case it must be that the players’ equilibrium beliefs violate a condition that we term “inter-generational agreement.” A previous version of this paper was circulated as Anderlini et al. (2005). We are grateful to Jeff Ely, Leonardo Felli, Navin Kartik, David Levine, Stephen Morris, Michele Piccione, Andrew Postlewaite, Lones Smith and to seminar audiences at Bocconi, Cambridge, CEPR-Guerzensee, Chicago, Columbia, Edinburgh, Essex, Georgetown, Leicester, LSE, Northwestern, Oxford, Rome (La Sapienza), Rutgers, SAET-Vigo, Stanford, SUNY-Albany, UCL, UC-San Diego, Venice and Yale for helpful feedback.     

Communication in dynastic repeated games: ‘Whitewashes’ and ‘coverups’

Summary. We ask whether communication can directly substitute for memory in dynastic repeated games in which short lived individuals care about the utility of their offspring who replace them in an infinitely repeated game. Each individual is unable to observe what happens before his entry in the game. Past information is therefore conveyed from one cohort to the next by means of communication.When communication is costless and messages are sent simultaneously, communication mechanisms or protocols exist that sustain the same set of equilibrium payoffs as in the standard repeated game. When communication is costless but sequential, the incentives to whitewash the unobservable past history of play become pervasive. These incentives to whitewash can only be countered if some player serves as a neutral historian who verifies the truthfulness of others reports while remaining indifferent in the process. By contrast, when communication is sequential and (lexicographically) costly, all protocols admit only equilibria that sustain stage Nash equilibrium payoffs.We also analyze a centralized communication protocol in which history leaves a footprint that can only hidden by the current cohort by a unanimous coverup. We show that in this case the set of payoffs that are sustainable in equilibrium coincides with the weakly renegotiation proof payoffs of the standard repeated game.Received: 30 September 2002, Revised: 5 August 2003, JEL Classification Numbers: C72, C73, D82.We wish to thank an Associate Editor and Dino Gerardi as well as seminar participants at Arizona State, Columbia, Duke, Georgetown, Indiana, Montreal, Princeton, Rochester, Vanderbilt, VPI, the 2001 NSF/NBER Decentralization Conference, the Summer 2001 North American Econometric Society Meetings, and the Midwest Theory Conference, 2000, for useful comments and suggestions. All errors are our own.