Journal Article

Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems

V. Bhaskar

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 65, issue 1, pages 135-149
Published in print January 1998 | ISSN: 0034-6527
Published online January 1998 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00038
Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems

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This paper analyses the sustainability of inter-generational transfers in Samuelson's consumption-loan model when agents are imperfectly informed about past events. We find that with mild informational constraints, transfers cannot be supported by pure-strategy equilibria. Mixed strategies allow transfers to be sustained even if agents have little information, so that a version of the Folk theorem holds. However, these equilibria are not robust. If each agent's utility function is subjected to a small random perturbation as in Harsanyi (1973), these mixed strategy equilibria unravel, and only the zero-transfer allocation survives as the unique rationalizable outcome. This result is an example of mixed strategy equilibrium of an extensive form game which cannot be purified.

Journal Article.  0 words. 

Subjects: Economics

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