Reputation and the Flow of Information in Repeated Games

This paper derives equilibrium payoff bounds from reputation effects for repeated moral hazard games in which a long-run player interacts frequently with a population of short-run players and the monitoring technology varies with the length of the period of interaction. The bounds depend on the monitoring technology through the flow of information, a measure of signal informativeness (per unit of time) based on relative entropy. Examples are shown where, under complete information, the set of equilibrium payoffs of the long-run player converges, as the period length tends to zero, to the set of static equilibrium payoffs, whereas when the game is perturbed by a small ex ante probability on commitment types, reputation effects remain powerful in the frequent interaction limit.