Repeated Games with Differential Time Preferences

This paper provides a folk theorem for two-player repeated games in which players have different discount factors. In such games, players can mutually benefit from trading payoffs across time. Hence, the set of feasible repeated game payoffs is typically larger than the convex hull of the underlying stage-game payoffs. However, many trade plans that guarantee individually rational payoffs are not sustainable by an equilibrium, no matter how patient the players are. Therefore, the set of equilibrium payoffs might not approach the set of all feasible and individually rational repeated game payoffs.