WHEN AND HOW THE PUNISHMENT MUST FIT THE CRIME |
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| Authors: | George J Mailath Volker Nocke Lucy White |
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| Institution: | 1. University of Pennsylvania, U.S.A.;2. Australian National University, Australia;3. University of California, Los Angeles, U.S.A.;4. University of Mannheim, Germany;5. CEPR, U.K.Mailath thanks the National Science Foundation for research support (grants SES‐0350969). Nocke is grateful for financial support from the European Research Council (grant no. 313623). This is a major revision of “When the Punishment Must Fit the Crime: Remarks on the Failure of Simple Penal Codes in Extensive‐Form Games,” originally circulated in 2004. We thank the editor Simon Board and three anonymous referees for helpful comments and Larry Samuelson for helpful discussions. |
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| Abstract: | In repeated normal‐form (simultaneous‐move) games, simple penal codes (Abreu, Journal of Economic Theory 39(1) (1986), 191–225; and Econometrica 56(2) (1988), 383–96) permit an elegant characterization of the set of subgame‐perfect outcomes. We show that in repeated extensive‐form games such a characterization no longer obtains. By means of examples, we identify two types of settings in which a subgame‐perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator but also to the nature of the deviation. |
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