October 14, 2004, revised March 28, 2006
In repeated normal-form games, simple penal codes (Abreu
1986, 1988) permit an elegant characterization of the set of subgame-perfect
outcomes. We show that the logic of simple penal codes fails in repeated extensive-form
games. We provide two examples illustrating that a subgame-perfect outcome may
be supported \emph{only} by a profile with the property that the continuation
play after a deviation is tailored not only to the identity of the deviator,
but also to the nature of the deviation. Keywords: Simple Penal Code,
Subgame Perfect Equilibrium, Repeated Extensive Game, Optimal Punishment. JEL
Classifiication Codes: C70, C72, C73.
Updated July 26, 2006 .