A Bargaining Approach to Profit Sharing in Joint Ventures
Profit-sharing arrangements in joint ventures are analyzed as a Bayesian bargaining game between two parents with incomplete information about each other's cost function for inputs provided. Using the mathematics of mechanism design, this article explores the sensitivity of the bargaining agreement to the timing of private information about costs. A condition on demand and costs is derived under which the balanced budget constraint does not preclude the joint venture from achieving an ex post efficient level of production. The proposed mechanism is then extended to the second-best environment under the criteria of (1) ex ante optimality and (2) R. B. Myerson's axiomatic neutral bargaining solution. The direct revelation mechanisms are interpreted as corresponding indirect transfer-pricing mechanisms. A major result is that, in all cases, the outcome calls for equal allocation of realized joint venture net profit. Copyright 1989 by the University of Chicago.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.