The Castle on the Hill

David K. Levine
2000 Review of economic dynamics (Print)  
A simple example of a stochastic game with irreversibility is studied and it is shown that the folk theorem fails in a robust way. In this game of Castle on the Hill, for a broad range of discount factors, including those close to one, equilibrium is unique. Moreover, the equilibrium for large discount factors is Pareto dominated by the equilibrium for low discount factors. A unique cyclic equilibrium is also possible for intermediate ranges of discount factors. * I would like to thank NSF
more » ... SBER 9617899 and the UCLA Academic Senate for financial support. An especial debt of gratitude is owed an anonymous referee who discovered an error in an earlier version of the main theorem. 2
doi:10.1006/redy.2000.0094 fatcat:olfgpqpibjh2vew7mhil46ta7u