The optimal degree of cooperation in the repeated prisoners' dilemma with side payments (Q834876)

Consider an infinitely repeated prisoner's dilemma (2 players), with different rates of discount and side-payments. The paper characterizes the Pareto frontier of the set of subgame perfect equilibrium payoffs, for all possible discount rate configurations (nicely summarized in figure 1). When the difference in the discount rates is sufficiently large, Pareto payoffs are supported by side payments from the impatient to the patient player, and cooperation is less than complete.