Efficiency in repeated games with imperfect monitoring

Abstract We assert that efficiency will be attained with supergame equilibria when the discount factor is close to, but less than, unity, even though the players' actions cannot be monitored perfectly. This is in contrast to the conjecture of R. Radner, R. Myerson, and E. Maskin ( Rev. Econ. Stud. 53 (1986), 59–70). Their conjecture relies essentially on a certain separability condition of the commonly observable random signal which is too restrictive to be representative of the general case.