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Chapter 7 Efficiency of Joint Enterprises with Internal Bargaining

In: The Economics of Innovation

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  • Luca Lambertini
  • Sougata Poddar
  • Dan Sasaki

Abstract

In this paper we take a close look at those strategic incentives arising in a situation where firms share the costs and profits in a multi-firm project, and bargain for their respective (precommitted) split of cost- and profit-shares. We establish that, when each firm's effort contribution to the joint undertaking is mutually observable (which is often the case in closely collaborative operations) and hence can form basis of the contingent cost- and profit-sharing scheme, it is not the gross economic efficiency but the super-/sub-additivity of the nett returns from effort that directly affects the sustainability of a profile of firms' effort contributions. The (in)efficiency result we obtain in this paper is of different nature from so-called “free riding” or “team competition” problems: the set of sustainable outcomes with bargaining over precommitted cost- and profit-shares is generally neither a superset nor a subset of the sustainable set without bargaining.

Suggested Citation

  • Luca Lambertini & Sougata Poddar & Dan Sasaki, 2008. "Chapter 7 Efficiency of Joint Enterprises with Internal Bargaining," Contributions to Economic Analysis, in: The Economics of Innovation, pages 129-141, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:ceazzz:s0573-8555(08)00207-1
    DOI: 10.1016/S0573-8555(08)00207-1
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