This paper shows in two ways that the degree to which free-riding diminishes the performance of deterministic partnerships may be less than has been generally thought. First, a necessary and sufficient condition is provided for a partnership to sustain full efficiency. It implies that many nontrivial partnerships sustain efficiency, such as generic ones with finite action spaces, and neoclassical ones with Leontief technologies. Second, approximate efficiency is shown to be achievable in a large class of partnerships, including ones with smooth and monotonic production and disutility functions. Approximate efficiency is achieved by mixed strategy equilibria: one partner takes, with small probability, an inefficient action. The degree to which efficiency is approximated is restricted only by the amount of liability the partners can bear. Nonetheless, their equilibrium payments are not arbitrarily large.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
991R.
Length: Date of creation: Jul 1992 Date of revision: Handle: RePEc:nwu:cmsems:991r
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Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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Luis Garicano & Tano Santos, 2004.
"Referrals,"
American Economic Review,
American Economic Association, vol. 94(3), pages 499-525, June.
[Downloadable!] (restricted)
Other versions:
Luis Garicano & Tano Santos, 2001.
"Referrals,"
NBER Working Papers
8367, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Alex Gershkov & Jianpei Li & Paul Schweinzer, 2006.
"Collective Production and Incentives,"
Discussion Papers
186, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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