Address for correspondence:

We present a repeated prisoners ’ dilemma game with imperfect pub-lic monitoring, which exhibits the following paradoxical feature: the (limit) equilibrium payoff set achieves full efficiency asymptotically as the public signal becomes insensitive to the hidden actions of the play-ers. The basic logic behind this result also provides an example where the Folk theorem is obtained, while Fudenberg-Levine-Maskin’s suffi-cient conditions (Econometrica 1994) for Folk theorem are violated