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Profit sharing in unique Nash equilibrium: Characterization in the two-agent case

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Author Info
Justin Leroux () (IEA, HEC Montréal)

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Abstract

Two agents jointly operate a decreasing marginal returns technology to produce a private good. We characterize the class of output-sharing rules for which the labor-supply game has a unique Nash equilibrium. It consists of two families: rules of the serial type which protect a small user from the negative externality imposed by a large user, and rules of the reverse serial type, where one agent effectively employs the other agent’s labor. Exactly two rules satisfy symmetry; a result in sharp contrast with Moulin and Shenker’s (Econometrica, 1992) characterization of their serial mechanism as the unique cost-sharing rule satisfying the same incentives property. We also show that the familiar stand alone test characterizes the class of fixed-path methods (Friedman, Economic Theory, 2002) under our incentives criterion.

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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 06-11.

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Length: 19 pages
Date of creation: Oct 2006
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Handle: RePEc:iea:carech:0611

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Related research
Keywords: Joint production; serial rule; decreasing serial rule; strategyproofness.;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D62 - Microeconomics - - Welfare Economics - - - Externalities

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  1. 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. [Downloadable!] (restricted)
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  3. Sprumont, Yves, 1998. "Ordinal Cost Sharing," Journal of Economic Theory, Elsevier, vol. 81(1), pages 126-162, July. [Downloadable!] (restricted)
  4. Alcalde, Jose & Angel Silva, Jose, 2004. "A proposal for sharing costs," Journal of Mathematical Economics, Elsevier, vol. 40(7), pages 831-845, November. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
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  6. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September. [Downloadable!] (restricted)
  7. Moulin, Herve & Watts, Alison, 1995. "Two Versions of the Tragedy of the Commons," Working Papers 95-04, Duke University, Department of Economics.
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  8. Leroux, Justin, 2004. "Strategy-proofness and efficiency are incompatible in production economies," Economics Letters, Elsevier, vol. 85(3), pages 335-340, December. [Downloadable!] (restricted)
  9. Tejedo, Cyril & Truchon, Michel, 2002. "Serial cost sharing in multidimensional contexts," Mathematical Social Sciences, Elsevier, vol. 44(3), pages 277-299, December. [Downloadable!] (restricted)
  10. Angeles de Frutos, M., 1998. "Decreasing Serial Cost Sharing under Economies of Scale," Journal of Economic Theory, Elsevier, vol. 79(2), pages 245-275, April. [Downloadable!] (restricted)
  11. 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, Blackwell Publishing, vol. 46(2), pages 185-216, April. [Downloadable!] (restricted)
  12. Eric Friedman, 2004. "Strong monotonicity in surplus sharing," Economic Theory, Springer, vol. 23(3), pages 643-658, March. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Moulin, Herve, 2002. "Axiomatic cost and surplus sharing," Handbook of Social Choice and Welfare, in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 6, pages 289-357 Elsevier. [Downloadable!] (restricted)
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