When large communities transact with each other and players change rivals over time, players may not recognize each other or may have limited information about past play. Can players cooperate in such anonymous transactions? I analyze an infinitely repeated random matching game between two communities. Players' identities are unobservable and players only observe the outcomes of their own matches. Players may send an unverifiable message (a name) before playing each game. I show that for any such game, all feasible individually rational payoffs can be sustained in equilibrium if players are sufficiently patient. Cooperation is achieved not by the standard route of community enforcement or third-party punishments, but by "community responsibility". If a player deviates, her entire community is held responsible and punished by the victim. * I would like to thank my advisor, Johannes Hörner for his invaluable guidance and encouragement at every stage of this project. I also thank Eddie Dekel, Jeff Ely, Julio González-Díaz, Peter Klibanoff and Siddarth Madhav for comments and many helpful conversations.
We study optimal dynamic contracting for a firm with multiple workers where compensation is based on public performance signals and privately reported peer evaluations. We show that if evaluation and effort provision are done by different workers (e.g., consider supervisor‐agent hierarchy), first‐best can be achieved even in a static setting. However, if each worker both exerts effort and reports peer evaluations (e.g., consider team setting), effort incentives cannot be decoupled from truth‐telling incentives. This makes the optimal static contract inefficient. Relational contracts based on public signals increase efficiency. Interestingly, the optimal contract may ignore signals that are informative about effort.
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