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Team Production, Sequential Investments, and Stochastic Payoffs

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  • Christoph Lülfesmann

Abstract

This paper investigates a team production problem where two parties invest sequentially to generate a joint surplus. We find that the first best can be implemented even if the investment return is highly uncertain. The optimal contract entails a basic dichotomy: it is a simple option contract if investments of both parties are substitutive, and a linear incentive contract if they are complementary. These arrangements can be interpreted in terms of asset ownership, and renegotiation arises in equilibrium after the first agent has invested.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 157 (2001)
Issue (Month): 3 (September)
Pages: 430-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200109)157:3_430:tpsias_2.0.tx_2-8

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Cited by:
  1. Christian Keuschnigg, 2003. "Optimal Public Policy For Venture Capital Backed Innovation," University of St. Gallen Department of Economics working paper series 2003 2003-09, Department of Economics, University of St. Gallen.
  2. Kirstein, Roland, 2004. "Anti-Teilen in Teams," CSLE Discussion Paper Series 2004-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  3. Kirstein, Roland & Cooter, Robert, 2003. "Anti-Sharing," CSLE Discussion Paper Series 2003-02, Saarland University, CSLE - Center for the Study of Law and Economics.

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