Negotiating Cooperation under Uncertainty: Communication in Noisy, Indefinitely Repeated Interactions
American Economic Journal: Microeconomics (Forthcoming)
Case studies of cartels and recent theory suggest that communication
is a key factor for cooperation under imperfect monitoring,
where actions can only be observed with noise. We conduct a laboratory
experiment to study how communication affects cooperation
under different monitoring structures. Pre-play communication
reduces strategic uncertainty and facilitates very high cooperation
rates at the beginning of an interaction. Under perfect monitoring,
this is sufficient to reach a high and stable cooperation rate.
However, repeated communication is important to maintain a high
level of cooperation under imperfect monitoring, where players face
additional uncertainty about the history of play.