remains because defection is the unique best response in the one-shot game. In
conclusion, though personal punishment is a sufficient threat to sustain cooperation, it is
not a credible one.
4.3 Equilibrium in the indefinitely repeated game with public monitoring
In this section we specify that the efficient outcome can also be sustained as a
sequential equilibrium in the treatments in which the history of actions taken in the
economy is public information. Of course, with more information the possible strategies
that sustain the efficient outcome are expanded.
Proposition 4. In our experimental economies with public monitoring, the efficient
outcome can be sustained as an equilibrium.
When we allow for public monitoring, instead, the value of δ* can only fall. It is now
0.25 since according to the grim trigger strategy, a current defection implies a sure
defection by any future partner. This is illustrated in Figure 1 by the line denoted global
strategy, representing a grim trigger strategy in which permanent defection occurs as
soon as a defection is detected anywhere in the economy (in or outside the pair).
Figure 1: Dynamic reaction to a defection in an economy
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