Performance and turnover in a stochastic partnership

Published

Journal Article

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".

Full Text

Duke Authors

Cited Authors

  • McAdams, D

Published Date

  • November 1, 2011

Published In

Volume / Issue

  • 3 / 4

Start / End Page

  • 107 - 142

Electronic International Standard Serial Number (EISSN)

  • 1945-7685

International Standard Serial Number (ISSN)

  • 1945-7669

Digital Object Identifier (DOI)

  • 10.1257/mic.3.4.107

Citation Source

  • Scopus