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Some Comments on Free-Riding in Leontief Partnerships

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  • Hvide, Hans K

Abstract

Holmstrom (1982) showed that free-riding is inevitable in partnerships where inputs are substitutes. Legros and Matthews (1993) and Vislie (1994) showed that when inputs are strict complements (Leontief technology), free-riding can be avoided with a linear sharing rule. This paper considers the robustness and some extensions of the positive result of these articles. First, I show that Legros and Matthews's and Vislie's results are not robust to the introduction of participation constraints and limited liability. However, I construct a novel rule that mitigates that problem. Second, I perturb the (deterministic) model of the other authors. It turns out that free-riding is avoidable with noise added to joint output and is inevitable when noise is added to individual productivity. Copyright 2001 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 39 (2001)
Issue (Month): 3 (July)
Pages: 467-73

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Handle: RePEc:oup:ecinqu:v:39:y:2001:i:3:p:467-73

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Cited by:
  1. Asheim, Geir B. & Yoo, Seung Han, 2007. "Coordinating under incomplete information," Memorandum 22/2007, Oslo University, Department of Economics.
  2. L. Bagnoli & G. Negroni, 2008. "The emergence of norms of cooperation in stag hunt games with production," Working Papers 626, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Basu, Kaushik & Weibull, J├Ârgen W., 2002. "Punctuality - A Cultural Trait as Equilibrium," Working Paper Series 582, Research Institute of Industrial Economics.
  4. Jan Y. Sand, 2009. "Efficiency in complementary partnerships with competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 57-70.

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