Club Enlargement: Early Versus Late Admittance
We develop an incomplete contract model to analyze the enlargement strategy of a club. An applicant is characterized by his wealth and the degree of conformity with the club standard. The club gains only from a fully reformed new members, but reforms is costly. The club chooses between early admittance, where it can enforce reform through its partial control power, and late admittance, where entry is conditioned on completed reform. Under the optimal enlargement strategy of the club, wealth applicants pay an entrance fee and enter early, and poor applicants enter in reversed order: A less advanced is admitted early and a more advanced ate. Moreover, poor applicants extract rents that increase in the ration of reform distance to wealth. If the club can impose a deadline for late entry, it can eliminate all rents with stage financing. In the dynamic game renegotiation undermines the viability of the late admittance strategy. In the finite game, and applicants rent from a late offer is non-monotonic in his reform distance and the ability to deteriorate his reform status strategically need not be detrimental to the club.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joseph Farrell and Eric Maskin., 1987.
"Renegotiation in Repeated Games,"
Economics Working Papers
8759, University of California at Berkeley.
- Merton, Robert C., 1971.
"Optimum consumption and portfolio rules in a continuous-time model,"
Journal of Economic Theory,
Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, March.
- Bengt Holmstrom & Jean Tirole, 1994.
"Financial Intermediation, Loanable Funds and the Real Sector,"
95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
- Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
- Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Kevin Roberts, 1999.
"Dynamic Voting in Clubs,"
STICERD - Theoretical Economics Paper Series
367, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Sandler, Todd & Tschirhart, John T, 1980. "The Economic Theory of Clubs: An Evaluative Survey," Journal of Economic Literature, American Economic Association, vol. 18(4), pages 1481-1521, December.
- Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
- Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, March.
- Richard E. Baldwin & Joseph F. Francois & Richard Portes, 1997. "The costs and benefits of eastern enlargement: the impact on the EU and central Europe," Economic Policy, CEPR;CES;MSH, vol. 12(24), pages 125-176, 04.
- Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, December.
- Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
When requesting a correction, please mention this item's handle: RePEc:fmg:fmgdps:dp359. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration)
If references are entirely missing, you can add them using this form.