Necessary and Sufficient Conditions for the Perfect Finite Horizon Folk Theorem

Necessary and Sufficient Conditions for the Perfect Finite Horizon Folk Theorem, (Econometrica, 1995)

For a finitely-repeated game, the perfect folk theorem was proven by Benoit and Krishna (1985) when (i) the stage game G obeys the sufficient conditions for the infinite-horizon folk theorem-namely, and (ii) each player has distinct Nash payoffs in G. Here I provide a simple, easily verifiable, and necessary and sufficient condition that replaces (ii): The intuitive condition, recursively distinct Nash payoffs, asks¬†that players’ behavior be iteratively leveraged near the end of the repeated game.