Team Production, Sequential Investments and Stochastic Payoffs
AbstractWe investigate a team production problem where two parties sequentially invest to generate a joint surplus. In this framework, it is possible to implement the first best even if the investment return is highly uncertain. The optimal contract entails a basic dichotomy: it is a simple option contract if the investments of both parties are substitutive, and a linear incentive contract if they are complementary. These schemes can be interpreted in terms of asset ownership: for the case of substitutive investments, a conditional ownership structure is optimal while for complementary investments shared equity in combination with a bonus component renders efficiency feasible. In either case, the parties renegotiate the initial arrangement after the first party invested.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse6_2001.
Date of creation: Oct 2000
Date of revision:
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Team Production; Asset Ownership; Sequential Investments;
Other versions of this item:
- Christoph Lülfesmann, 2001. "Team Production, Sequential Investments, and Stochastic Payoffs," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(3), pages 430-, September.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-04-21 (All new papers)
- NEP-FIN-2001-04-21 (Finance)
- NEP-LAW-2001-04-21 (Law & Economics)
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- Kirstein, Roland & Cooter, Robert, 2003.
CSLE Discussion Paper Series
2003-02, Saarland University, CSLE - Center for the Study of Law and Economics.
- 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.
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- Kirstein, Roland, 2004. "Anti-Teilen in Teams," CSLE Discussion Paper Series 2004-04, Saarland University, CSLE - Center for the Study of Law and Economics.
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