It is harder to sustain a collusive agreement in an infinitely repeated game if:
I. The present value of the stream of payoffs from cooperating is higher.
II. The discount rate is lower.
III. The present value of violating the agreement is higher.
Which of the following is correct?
A) I only.
B) II only.
C) III only.
D) I and II only.
E) II and III only.

Question

Quizplus · Accepted Answer

A collusive agreement is harder to sustain if the present value of violating the agreement is higher, as it provides a greater incentive to deviate from the agreement.

It Is Harder to Sustain a Collusive Agreement in an Infinitely