Is Full Compliance Possible? Conditions for Shirking with Imperfect Monitoring and Continuous Action Spaces

Games of public good provision, collective action, and collusion share concern for the free rider that shirks on its obligations. According to the folk theorem, the free rider problem can be resolved through punishment mechanisms. Versions of the folk theorem have been applied when monitoring is imperfect. Empirical evidence contradicts this theory: while often subjects cooperate significantly, rarely is all shirking eliminated. To reconcile theory with empirical evidence, I provide a theoretical basis for the inability of participants in collective action problems to attain full compliance. I construct a general class of compliance models with imperfect monitoring through a common signal. I derive sufficient conditions - on both the utility of agents and the monitoring capabilities - under which slippage from full compliance is unavoidable, showing the limits of the folk theorem logic. The results cover most cases of concern to political scientists and political economists including public goods provision, contract and treaty compliance, collective action, and even Cournot competition. The paper concludes with a discussion about institutional design