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Efficiency in complementary partnerships with competition

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  • Jan Y. Sand

    (Department of Economics and Management, University of Troms�, Troms�, Norway)

Abstract

The objective of this paper is to show how efficiency can be implemented in a market with strictly complementary inputs when the productive firms undertake unobservable effort. The observable output is a joint undertaking by a partnership consisting of two types of firms. It is shown that simple linear sharing rules cannot implement socially optimal effort, but a modified linear sharing rule can implement the first-best outcome provided that commitment to the proposed sharing rule is possible. This is so even when the sharing rule is proposed by one of the active partners. When opening up for the possibility of renegotiating sharing contracts that have undesirable properties for one or more of the firms, it becomes more difficult to implement socially efficient solutions. Implementation of the socially efficient outcome requires that the sharing rule is proposed by an outsider to the partnership. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1438
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 1 ()
Pages: 57-70

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Handle: RePEc:wly:mgtdec:v:30:y:2009:i:1:p:57-70

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Green, Jerry & Laffont, Jean-Jacques., 1988. "Renegotiation and the Form of Efficient Contracts," Working Papers 672, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  3. Kline, J. Jude, 1997. "Efficiency and equilibria in complementary teams: A comment," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 621-623, April.
  4. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-59, April.
  5. Björn Bartling & Ferdinand A. von Siemens, 2010. "Equal Sharing Rules in Partnerships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 299-320, June.
  6. Hvide, Hans K, 2001. "Some Comments on Free-Riding in Leontief Partnerships," Economic Inquiry, Western Economic Association International, vol. 39(3), pages 467-73, July.
  7. Vislie, Jon, 1994. "Efficiency and equilibria in complementary teams," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 83-91, January.
  8. Maskin, Eric & Moore, John, 1999. "Implementation and Renegotiation," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 39-56, January.
  9. Joseph Farrell and Suzanne Scotchmer., 1986. "Partnerships," Economics Working Papers 8616, University of California at Berkeley.
  10. Patrick Legros & Steven Matthews, 1993. "Efficient and nearly efficient partnerships," ULB Institutional Repository 2013/7040, ULB -- Universite Libre de Bruxelles.
  11. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
  12. McAfee, R Preston & McMillan, John, 1991. "Optimal Contracts for Teams," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 561-77, August.
  13. Aghion, P. & Dewatripont, M. & Rey, P., 1990. "On renegotiation design," European Economic Review, Elsevier, vol. 34(2-3), pages 322-329, May.
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