Dissolution of Partnerships in Infinitely Repeated Games

We experimentally examine repeated partnerships with imperfect monitoring, where participants can unilaterally sever partnerships at any time. The experiment examines effects from changes in the value of an outside-the-partnership option. We find four main results where partners have access to the same outside option: i) the presence of a dissolution option increases cooperation; ii) the use of dissolution is dictated by individual rationality; iii) where dissolution is used as a punishment, subjects increases lenience, but are still forgiving; iv) overall efficiency is non-monotone in the outside option. An extension examines asymmetric outside options finding: advantages to terminating first-movers creates highly inefficient outcomes; a last-mover advantage is less inefficient but reduces forgiveness; while an arbitrator-mechanism assigning higher payoffs to `more-deserving` parties increases efficiency.