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Anti-Sharing

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  • Kirstein, Roland
  • Cooter, Robert

Abstract

The paper proposes a mechanism that may implement first-best effort in simultaneous teams. Within the framework of this mechanism, each team members is obliged to make a fixed, non-contingent payment, and chooses his individual effort. After the output is produced, each team member receives a gross payment that equals the actual team output. We demonstrate that a Nash equilibrium exists in which each team member chooses first-best effort. We call this mechanism ?Anti-Sharing? since it solves the sharing problem that causes the inefficiency in teams. The Anti-Sharing mechanism requires one player to specialize on the role of an ?Anti-Sharer?. With an external Anti-Sharer who works on a non-profit base, the mechanism can implement first-best effort. If, however, the Anti-Sharer comes from within the team and desires a positive payoff, then the mechanism may implement not more than second-best effort. The latter version of the model could be interpreted as a new theory of firms and partnerships in the sense of the theory of Alchian and Demsetz (1972). --

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Bibliographic Info

Paper provided by Saarland University, CSLE - Center for the Study of Law and Economics in its series CSLE Discussion Paper Series with number 2003-02.

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Date of creation: 2003
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Handle: RePEc:zbw:csledp:200302

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Related research

Keywords: Efficient Effort in Teams; Second-Best Solution; Partnerships;

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References

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  1. Choi, Yoon K., 1993. "Managerial incentive contracts with a production externality," Economics Letters, Elsevier, vol. 42(1), pages 37-42.
  2. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  3. 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.
  4. Eric Rasmusen, 1987. "Moral Hazard in Risk-Averse Teams," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 428-435, Autumn.
  5. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2003. "Aligning the Interests of Lawyers and Clients," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 165-188.
  6. Cooter, Robert D. & Porat, Ariel, 2002. "Anti-Insurance," Berkeley Olin Program in Law & Economics, Working Paper Series qt1vw0d9sf, Berkeley Olin Program in Law & Economics.
  7. Varian, Hal R, 1994. "A Solution to the Problem of Externalities When Agents Are Well-Informed," American Economic Review, American Economic Association, vol. 84(5), pages 1278-93, December.
  8. Strausz, Roland, 1999. "Efficiency in Sequential Partnerships," Journal of Economic Theory, Elsevier, vol. 85(1), pages 140-156, March.
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