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Kreps (1990) - Corporate Culture And Economic Theory (view source)
Revision as of 15:50, 28 April 2010
, 15:50, 28 April 2010→A Folk Theorem Model
For the buyer:
<math>\underset{\text{Supported Continuation Cont. Value}}{\underbrace{ 1+\sum_{t=1}^{\infty} \Beta^t \cdot 1 }} \ge \underset{\text{Supported Continuation Punishment Cont. Value}}{\underbrace{0}}\,</math>
For the seller:
<math>\underset{\text{Supported Continuation Cont. Value}}{\underbrace{ 1+\sum_{t=1}^{\infty} \Beta^t \cdot 1 }} \ge \underset{\text{Supported Continuation Punishment Cont. Value}}{\underbrace{2+0}}\,</math>
:<math>\frac{1}{1-\beta} \ge 2 \; \therefore \beta \ge \frac{1}{2}\,</math>
==Short Lived Agents==
The folk theorem implicitly requires that agents are long lived - the need a memory of whether anyone ever defected in the past to choose their strategy.
