Efficient and Nearly-Efficient Partnerships

Legros, Patrick; Matthews, Steven A.

doi:10.2307/2298126

Cited by 170 publications

(111 citation statements)

References 9 publications

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“…Observe that f ′ 1 > f ′ 0 implies 15 The economics literature on how to achieve efficiency in the presence of externalities has, almost exclusively, focused on free-rider games. Two much studied examples are the "tragedy of the commons" games where common access to resources lead agents to choose consumption levels in excess of the social optimum (see, e.g., Gordon 1954), and "team production games " where, given a joint production process, team members under-provide effort (Holmström 1982; also see Legros and Matthews 1993;and Battaglini, Forthcoming).…”

Section: Discussionmentioning

confidence: 99%

Coordinating development: Can income-based incentive schemes eliminate Pareto inferior equilibria?

Bond

Pande

2007

Journal of Development Economics

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Individuals' inability to coordinate investment may significantly constrain economic development.In this paper we study a simple investment game characterized by multiple equilibria and ask whether an income-based incentive scheme can uniquely implement the high investment outcome.A general property of this game is the presence of a crossover investment point at which an individual's incomes from investment and non-investment are equal. We show that arbitrarily small errors in the government's knowledge of this crossover point can prevent unique implementation of the high investment outcome. We conclude that informational requirements are likely to severely limit a government's ability to use income-based incentive schemes as a coordination device.

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Section: Discussionmentioning

confidence: 99%

Coordinating development: Can income-based incentive schemes eliminate Pareto inferior equilibria?

Bond

Pande

2007

Journal of Development Economics

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“…The effect of technological improvement on the surplus shortfall at a squandering equilibrium is very different than the effect for 1 The framework just given, in its effort-game version, fits a number of papers, starting with Holmstrom (1982). Recent papers include Arya et al (1997), Che and Yoo (2001), Ishida (2006), Legros and Matthews (1993), Levitt (1995) and Nandeibam (2002). 2 First suppose there is a random variable θ , whose probability distribution is common knowledge.…”

Section: Organization Of the Papermentioning

confidence: 99%

Inefficiency and complementarity in sharing games

Courtney

Marschak

2008

Rev Econ Design

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A sharing game is a very simple device for partially reconciling an organization's goal with the interests of its members. Each member chooses an action, bears its cost, and receives a share of the revenue which the members' actions generate. A (pure-strategy) equilibrium of the game may be inefficient: surplus (revenue minus the sum of costs) may be less than maximal. In a previous paper, we found that for a wide class of reward functions, no one squanders at an inefficient equilibrium (spends more than at an efficient profile) if the revenue function has a complementarity property. In the present paper, we examine the "opposite" of the complementarity property (Substitutes) and we study a class of finite games where squandering equilibria indeed occur if Substitutes holds strongly enough. Squandering equilibria play a key role when one traces the effect of technological improvement on a sharing game's surplus shortfall. We then turn to the question of choice among reward functions in a principal/agents setting. We find that if we again assume complementarity then strong conclusions can be reached about the reward functions preferred by "society", by the players (agents), and by the principal.

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“…Contrary to the principal introduced in Holmstrom (1982), the budget breaker in the present model may be an active member of the partnership and can through her choice of effort affect total output. Legros and Matthews (1993) show that free-riding in partnerships only causes problems to the extent that the liability of the partners is limited. With unlimited liability, its is shown that efficiency can be approximated using simple mixing strategies.…”

Section: Introductionmentioning

confidence: 99%

“…If participation constraints and limited liability is introduced in a Leontief partnership, Hvide (2001) shows that the results of Legros and Matthews (1993) and Vislie (1994) no longer hold. Hvide (2001) shows that efficiency can be attained by devising a sharing rule that is balanced, satisfies limited liability and incentive compatibility and participation constraints.…”

Section: Introductionmentioning

confidence: 99%

Efficiency in complementary partnerships with competition

Sand

2008

Manage Decis Econ

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The objective of this paper is to show how efficiency can be implemented in a market with strictly complementary inputs when the productive firms undertake unobservable effort. The observable output is a joint undertaking by a partnership consisting of two types of firms. It is shown that simple linear sharing rules cannot implement socially optimal effort, but a modified linear sharing rule can implement the first-best outcome provided that commitment to the proposed sharing rule is possible. This is so even when the sharing rule is proposed by one of the active partners. When opening up for the possibility of renegotiating sharing contracts that have undesirable properties for one or more of the firms, it becomes more difficult to implement socially efficient solutions. Implementation of the socially efficient outcome requires that the sharing rule is proposed by an outsider to the partnership. Copyright © 2008 John Wiley & Sons, Ltd.

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Efficient and Nearly-Efficient Partnerships

Cited by 170 publications

References 9 publications

Coordinating development: Can income-based incentive schemes eliminate Pareto inferior equilibria?

Coordinating development: Can income-based incentive schemes eliminate Pareto inferior equilibria?

Inefficiency and complementarity in sharing games

Efficiency in complementary partnerships with competition

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