Signaling and Tacit Collusion in an Innitely Repeated PrisonersDilemma

In the context of an in…nitely repeated Prisoners’Dilemma, we explore how cooperation is initiated when players signal and coordinate through their actions. There are two types of players patient and impatient and a player’s type is private information. An impatient type is incapable of cooperative play, while if both players are patient types and this is common knowledge then they can cooperate with a grim trigger strategy. We …nd that the longer that players have gone without cooperating, the lower is the probability that they’ll cooperate in the next period. While the probability of cooperation emerging is always positive, there is a positive probability that cooperation never occurs. We thank the constructive and insightful comments of two anonymous referees.