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Non-cooperative investment in partnerships and their termination

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  • Franz Wirl

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Abstract

This paper investigates how partners (firms or husband and wife) should invest into an uncertain stock that provides a common good, when to stop investments and when to end their partnership. The assumption of lumpy investments leads to a real option problem which is solved for the cooperative and non-cooperative solutions. Yet despite the analytical solution, numerical means are necessary to investigate economic consequences: strong incentives to free ride under competition even turning one of the options—to stop investment at high stock levels—into one of a negative value; in contrast, divorce remains a positively valued option. Copyright Springer-Verlag 2009

Suggested Citation

  • Franz Wirl, 2009. "Non-cooperative investment in partnerships and their termination," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 17(4), pages 479-494, December.
  • Handle: RePEc:spr:cejnor:v:17:y:2009:i:4:p:479-494 DOI: 10.1007/s10100-009-0107-1
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    References listed on IDEAS

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    1. Paola Manzini & Marco Mariotti, 2004. "Going Alone Together: Joint Outside Options in Bilateral Negotiations," Economic Journal, Royal Economic Society, vol. 114(498), pages 943-960, October.
    2. Feichtinger, Gustav & Wirl, Franz, 1993. "A Dynamic Variant of the Battle of the Sexes," International Journal of Game Theory, Springer;Game Theory Society, vol. 22(4), pages 359-380.
    3. Fershtman, Chaim & Nitzan, Shmuel, 1991. "Dynamic voluntary provision of public goods," European Economic Review, Elsevier, vol. 35(5), pages 1057-1067, July.
    4. Steven Huddart & Pierre Jinghong Liang, 2003. "Accounting in Partnerships," American Economic Review, American Economic Association, vol. 93(2), pages 410-414, May.
    5. Rowat, Colin, 2007. "Non-linear strategies in a linear quadratic differential game," Journal of Economic Dynamics and Control, Elsevier, pages 3179-3202.
    6. Bonte, Werner & Keilbach, Max, 2005. "Concubinage or marriage? Informal and formal cooperations for innovation," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 279-302, April.
    7. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, December.
    8. Dumas, Bernard, 1991. "Super contact and related optimality conditions," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 675-685, October.
    9. Dockner Engelbert J. & Van Long Ngo, 1993. "International Pollution Control: Cooperative versus Noncooperative Strategies," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 13-29, July.
    10. Wirl, Franz & Feichtinger, Gustav, 2002. "Intrafamiliar Consumption and Saving under Altruism and Wealth Considerations," Economica, London School of Economics and Political Science, vol. 69(273), pages 93-111, February.
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    More about this item

    Keywords

    Stochastics; Real option game; Marriage; Divorce; J120; L140; C610;

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