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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.

Suggested Citation

  • Hvide, Hans K, 2001. "Some Comments on Free-Riding in Leontief Partnerships," Economic Inquiry, Western Economic Association International, vol. 39(3), pages 467-473, July.
    • Handle: RePEc:oup:ecinqu:v:39:y:2001:i:3:p:467-73
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    Cited by:

    1. Basu, Kaushik & Weibull, Jörgen W., 2002. "Punctuality - A Cultural Trait as Equilibrium," Working Paper Series 582, Research Institute of Industrial Economics.
    2. Jan Y. Sand, 2009. "Efficiency in complementary partnerships with competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 57-70.
    3. Geir Asheim & Seung Yoo, 2008. "Coordinating under incomplete information," Review of Economic Design, Springer;Society for Economic Design, vol. 12(4), pages 293-313, December.
    4. Matthew McGinty, 2014. "Strategic Incentives in Teams: Implications of Returns to Scale," Southern Economic Journal, John Wiley & Sons, vol. 81(2), pages 474-488, October.
    5. 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.

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