IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v44y2003i1p183-194.html
   My bibliography  Save this article

Endogenous formation of competing partnerships with moral hazard

Author

Listed:
  • Paz Espinosa, Maria
  • Macho-Stadler, Ines

Abstract

We analyze the formation of partnerships as a sequential choice-of-sizes game with moral hazard within coalitions; once formed, partnerships compete a la Cournot in the marketplace. We show that when moral hazard within coalitions is very severe, no partnership will form. However, when moral hazard is not too severe the coalition structure will be either similar or more concentrated than without moral hazard. We also show that, while without moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome, moral hazard may be responsible for an inefficiency of opposite sign.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Paz Espinosa, Maria & Macho-Stadler, Ines, 2003. "Endogenous formation of competing partnerships with moral hazard," Games and Economic Behavior, Elsevier, vol. 44(1), pages 183-194, July.
    • Handle: RePEc:eee:gamebe:v:44:y:2003:i:1:p:183-194
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899-8256(03)00019-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    2. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March.
    3. Paz Espinosa, Maria & Macho-Stadler, Ines, 2003. "Endogenous formation of competing partnerships with moral hazard," Games and Economic Behavior, Elsevier, vol. 44(1), pages 183-194, July.
    4. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    5. Hart, Sergiu, 1974. "Formation of cartels in large markets," Journal of Economic Theory, Elsevier, vol. 7(4), pages 453-466, April.
    6. Joseph Farrell & Suzanne Scotchmer, 1988. "Partnerships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(2), pages 279-297.
    7. Ray, Debraj & Vohra, Rajiv, 1999. "A Theory of Endogenous Coalition Structures," Games and Economic Behavior, Elsevier, vol. 26(2), pages 286-336, January.
    8. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
    9. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273.
    10. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
    11. Paz Espinosa, Maria & Macho-Stadler, Ines, 2003. "Endogenous formation of competing partnerships with moral hazard," Games and Economic Behavior, Elsevier, vol. 44(1), pages 183-194, July.
    12. Leibowitz, Arleen & Tollison, Robert, 1980. "Free Riding, Shirking, and Team Production in Legal Partnerships," Economic Inquiry, Western Economic Association International, vol. 18(3), pages 380-394, July.
    13. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-1064, July.
    14. Martin Gaynor & Paul Gertler, 1995. "Moral Hazard and Risk Spreading in Partnerships," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 591-613, Winter.
    15. Kevin Lang & Peter-John Gordon, 1995. "Partnerships as Insurance Devices: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 614-629, Winter.
    16. Yi, Sang-Seung & Shin, Hyukseung, 2000. "Endogenous formation of research coalitions with spillovers," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 229-256, February.
    17. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
    18. Belleflamme, Paul, 2000. "Stable Coalition Structures with Open Membership and Asymmetric Firms," Games and Economic Behavior, Elsevier, vol. 30(1), pages 1-21, January.
    19. Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 465-499.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joshi, Sumit & Smith, Stephen C., 2008. "Endogenous formation of coops and cooperative leagues," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 217-233, October.
    2. Paz Espinosa, Maria & Macho-Stadler, Ines, 2003. "Endogenous formation of competing partnerships with moral hazard," Games and Economic Behavior, Elsevier, vol. 44(1), pages 183-194, July.
    3. Albert Banal & Ines Macho-Stadler & Jo Seldeslachts, 2003. "Mergers, Investment Decisions and Internal Organisation," UFAE and IAE Working Papers 569.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. Theilen Bernd, 2009. "Market Competition and Lower Tier Incentives," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-29, June.
    5. Christophe Bravard & Sudipta Sarangi & ANA MAULEON & JOSE J. SEMPERE-MONERRIS & VINCENT VANNETELBOSCH, 2016. "Contractually Stable Alliances," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(2), pages 212-225, April.
    6. Fabrizi, Simona & Lippert, Steffen, 2003. "Moral Hazard and the Internal Organization of Joint Research," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    7. Maria Montero, 2023. "Coalition Formation in Games with Externalities," Dynamic Games and Applications, Springer, vol. 13(2), pages 525-548, June.
    8. Fabrizi, Simona & Lippert, Steffen, 2004. "How much efficiency gains and price reductions for an efficiency defense? 'Quanto Basta'," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    9. Ana, MAULEON & Vincent, VANNETELBOSCH, 2003. "Farsightedness and Cautiousness in Coalition Formation," LIDAM Discussion Papers IRES 2003003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    10. Vincent Anesi, 2009. "Moral hazard and free riding in collective action," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 32(2), pages 197-219, February.
    11. Banal-Estanol, Albert & Macho-Stadler, Ines & Seldeslachts, Jo, 2008. "Endogenous mergers and endogenous efficiency gains: The efficiency defence revisited," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 69-91, January.
    12. Chica Páez, Yolanda & Espinosa Alejos, María Paz, 2009. "Endogenous Unions Formation," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    13. Paz Espinosa, Maria & Macho-Stadler, Ines, 2003. "Endogenous formation of competing partnerships with moral hazard," Games and Economic Behavior, Elsevier, vol. 44(1), pages 183-194, July.
    14. Chiara CONTI, 2013. "Asymmetric information in a duopoly with spillovers: new findings on the effects of RJVs," Departmental Working Papers 2013-04, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    15. Chica Páez, Yolanda & Espinosa Alejos, María Paz, 2005. "Union Formation and Bargaining Rules in the Labor Market," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    16. Bartolini, David, 2007. "Market Efficiency and Coalition Structures," Economics Discussion Papers 8910, University of Essex, Department of Economics.
    17. Theilen, Bernd, 2009. "Market Competition and Lower Tier Incentives," Working Papers 2072/15843, Universitat Rovira i Virgili, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christophe Bravard & Sudipta Sarangi & ANA MAULEON & JOSE J. SEMPERE-MONERRIS & VINCENT VANNETELBOSCH, 2016. "Contractually Stable Alliances," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(2), pages 212-225, April.
    2. Sergio Currarini & Marco A. Marini, 2015. "Coalitional Approaches to Collusive Agreements in Oligopoly Games," Manchester School, University of Manchester, vol. 83(3), pages 253-287, June.
    3. Maria Montero, 2023. "Coalition Formation in Games with Externalities," Dynamic Games and Applications, Springer, vol. 13(2), pages 525-548, June.
    4. László Á. Kóczy, 2018. "Partition Function Form Games," Theory and Decision Library C, Springer, number 978-3-319-69841-0, July.
    5. Ana Mauleon & Vincent Vannetelbosch, 2003. "Farsightedness and Cautiousness in Coalition Formation," Working Papers 2003.52, Fondazione Eni Enrico Mattei.
    6. Albert Banal-Estañol & Ines Macho-Stadler & Jo Seldeslachts, 2003. "Mergers, Investment Decisions and Internal Organisation," CESifo Working Paper Series 944, CESifo.
    7. Kim, Chongmin & Shin, Hyukseung, 2002. "Endogenous formation of coalitions with composite goods," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1491-1511, December.
    8. Clark, Derek J. & Sand, Jan Yngve, 2010. "Endogenous technology sharing in R&D intensive industries," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-48.
    9. Marco Marini, 2007. "An Overview of Coalition & Network Formation Models for Economic Applications," Working Papers 0712, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2007.
    10. Marini, Marco A. & Currarini, Sergio, 2003. "A sequential approach to the characteristic function and the core in games with externalities," MPRA Paper 1689, University Library of Munich, Germany, revised 2003.
    11. Marco A. Marini, 2007. "An Overview of Coalitions and Networks Formation Models for Economic Applications," Working Papers 0707, CREI Università degli Studi Roma Tre, revised 2007.
    12. Horn, Henrik & Persson, Lars, 2001. "Endogenous mergers in concentrated markets," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1213-1244, September.
    13. Gabszewicz Jean J. & Marini Marco A. & Tarola Ornella, 2019. "Endogenous Mergers in Markets with Vertically Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-22, January.
    14. Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2006. "Sequential Formation of Coalitions Through Bilateral Agreements in a Cournot Setting," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(2), pages 207-228, August.
    15. Dollinger, Jérôme & Mauleon, Ana & Vannetelbosch, Vincent, 2023. "R&D and Market Sharing Agreements," LIDAM Discussion Papers CORE 2023004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    16. Thoron, Sylvie, 2004. "Which acceptable agreements are equilibria?," Mathematical Social Sciences, Elsevier, vol. 47(1), pages 111-134, January.
    17. Konishi, Hideo & Ray, Debraj, 2003. "Coalition formation as a dynamic process," Journal of Economic Theory, Elsevier, vol. 110(1), pages 1-41, May.
    18. Chica Páez, Yolanda & Espinosa Alejos, María Paz, 2009. "Endogenous Unions Formation," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    19. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2015. "Endogenous Mergers in Vertically Differentiated Markets," MPRA Paper 68318, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:44:y:2003:i:1:p:183-194. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.