Review of Economic Studies Vol. 65 No. 1 1998
Informational Constraints and the Overlapping Generations Model: Folk and Anti-Folk Theorems
Abstract
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.
- DOI
- 10.1111/1467-937x.00038
- Volume
- 65
- Issue
- 1
- Pages
- 135-149
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref