V. Bhaskar, INFORMATIONAL CONSTRAINTS AND THE OVERLAPPING GENERATIONS MODEL - FOLK AND ANTI-FOLK THEOREMS, Review of Economic Studies, 65(1), 1998, pp. 135-149
This paper analyses the sustainability of inter-generational transfers
in Samuelson's consumption-loan model when agents are imperfectly inf
ormed about past events. We find that with mild informational constrai
nts, 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, the
se equilibria are not robust. If each agent's utility function is subj
ected to a small random perturbation as in Harsanyi (1973), these mixe
d strategy equilibria unravel, and only the zero-transfer allocation s
urvives as the unique rationalizable outcome. This result is an exampl
e of mixed strategy equilibrium of an extensive form game which cannot
be purified.