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Strategyproof Profit Sharing in Partnerships: Improving upon Autarky

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  • Leroux, Justin

    (Rice U)

Abstract

Several producers decide to form a partnership, to which they contribute both capital and labor. We propose a group-strategyproof mechanism under which no single agent is tempted to secede from the partnership: the inverse marginal product proportions (or IMPP) mechanism. The IMPP mechanism combines aspects of common ownership with the requirement that private property rights be respected: when an agent decides to stop exploiting her own capital, the latter is shared between the remaining agents in proportion to the productivity of their own capital. The IMPP is in fact the only fixed-path method (as introduced in Friedman, 2002) to satisfy autarkic individual rationality; its path is uniquely determined by the capital contributions of the agents. Thus, our results provide one of the first economic motivation for the asymmetry of fixed-path methods.

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Bibliographic Info

Paper provided by Rice University, Department of Economics in its series Working Papers with number 2005-05.

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Date of creation: Apr 2005
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Handle: RePEc:ecl:riceco:2005-05

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  1. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  2. Weitzman, Martin L., 1974. "Free access vs private ownership as alternative systems for managing common property," Journal of Economic Theory, Elsevier, vol. 8(2), pages 225-234, June.
  3. Townsend, Ralph E, 1995. "Fisheries self-governance: corporate or cooperative structures?," Marine Policy, Elsevier, vol. 19(1), pages 39-45, January.
  4. Luis C. Corchón & M. Socorro Puy, 2002. "Existence and Nash implementation of efficient sharing rules for a commonly owned technology," Social Choice and Welfare, Springer, vol. 19(2), pages 369-379, April.
  5. Leroux, Justin, 2004. "Strategy-proofness and efficiency are incompatible in production economies," Economics Letters, Elsevier, vol. 85(3), pages 335-340, December.
  6. Sprumont, Y., 1996. "Ordinal Cost Sharing," Cahiers de recherche 9624, Universite de Montreal, Departement de sciences economiques.
  7. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP -354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 131-171, January.
  9. Salvador Barberà, 2001. "An introduction to strategy-proof social choice functions," Social Choice and Welfare, Springer, vol. 18(4), pages 619-653.
  10. Saijo, Tatsuyoshi, 1991. "Incentive compatibility and individual rationality in public good economies," Journal of Economic Theory, Elsevier, vol. 55(1), pages 203-212, October.
  11. Shin, Sungwhee & Suh, Sang-Chul, 1997. "Double Implementation by a Simple Game Form in the Commons Problem," Journal of Economic Theory, Elsevier, vol. 77(1), pages 205-213, November.
  12. Dasgupta, Partha S & Hammond, Peter J & Maskin, Eric S, 1979. "The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 185-216, April.
  13. Leroux, Justin, 2005. "Strategyproof Profit Sharing: A Two-Agent Characterization," Working Papers 2005-04, Rice University, Department of Economics.
  14. HervÊ Moulin, 1999. "Incremental cost sharing: Characterization by coalition strategy-proofness," Social Choice and Welfare, Springer, vol. 16(2), pages 279-320.
  15. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September.
  16. Friedman, Eric J., 2002. "Strategic properties of heterogeneous serial cost sharing," Mathematical Social Sciences, Elsevier, vol. 44(2), pages 145-154, November.
  17. 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.
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Cited by:
  1. Justin Leroux, 2006. "Profit sharing in unique Nash equilibrium: Characterization in the two-agent case," Cahiers de recherche 06-11, HEC Montréal, Institut d'économie appliquée.
  2. Leroux, Justin, 2005. "Strategyproof Profit Sharing: A Two-Agent Characterization," Working Papers 2005-04, Rice University, Department of Economics.
  3. Albizuri, M. Josune & Zarzuelo, Jose M., 2007. "The dual serial cost-sharing rule," Mathematical Social Sciences, Elsevier, vol. 53(2), pages 150-163, March.
  4. M. Albizuri, 2010. "The self-dual serial cost-sharing rule," Theory and Decision, Springer, vol. 69(4), pages 555-567, October.

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