INFORMATIONAL CONSTRAINTS AND THE OVERLAPPING GENERATIONS MODEL - FOLK AND ANTI-FOLK THEOREMS

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.