Description: Reading Group: Boli Xu (University of Iowa)

Location: 360 Heady Hall

Contact Person: Jian Li

Title: Stable Partnerships and Monitoring Design

Abstract: We study dynamic partnerships where players can choose to exit, and those who have exited continue to accrue benefits as long as some remaining players keep contributing to the partnership. We characterize the conditions for a partnership to be "stable" in the sense that no player exits on the equilibrium path. We show that a partnership switches between being stable and unstable as the number of players grows, and increasing players' abilities may harm a partnership. Moreover, when players can choose efforts over time in addition to their exit decisions, noisy monitoring of other players' efforts can facilitate cooperation. We design a simple monitoring structure of random auditing that achieves the first-best outcome.