Performance and Turnover in a Stochastic Partnership
Year: 2011
Type: article
Abstract: Suppose that players in a stochastic partnership have the option to quit and rematch anonymously. If stage-game payoffs are subject to a persistent initial shock, the (unique) social welfare-maximizing equilibrium induces a “dating” process in which all partners enjoy the full potential equilibrium gains from each match. By contrast, maximizing social welfare in non-stochastic repeated games with rematching requires that players burn money or otherwise fail to realize all potential equilibrium gains. Comparative statics on welfare and turnover are also provided, consistent with documented patterns of “survivorship bias” and “honeymoon.” (JEL C72, C73, C78)
DOI: 10.1257/mic.3.4.107
Author: David McAdams
Institution: Duke University
Language: English
Topic: Game Theory and Applications
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3122008757