Profit sharing in unique Nash equilibrium: Characterization in the two-agent case

Justin Leroux

No 06-11, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: Two agents jointly operate a decreasing marginal returns technology to produce a private good. We characterize the class of output-sharing rules for which the labor-supply game has a unique Nash equilibrium. It consists of two families: rules of the serial type which protect a small user from the negative externality imposed by a large user, and rules of the reverse serial type, where one agent effectively employs the other agent’s labor. Exactly two rules satisfy symmetry; a result in sharp contrast with Moulin and Shenker’s (Econometrica, 1992) characterization of their serial mechanism as the unique cost-sharing rule satisfying the same incentives property. We also show that the familiar stand alone test characterizes the class of fixed-path methods (Friedman, Economic Theory, 2002) under our incentives criterion.

Keywords: Joint production; serial rule; decreasing serial rule; strategyproofness. (search for similar items in EconPapers)
JEL-codes: C72 D23 D62 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2006-10
New Economics Papers: this item is included in nep-gth and nep-mic
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Journal Article: Profit sharing in unique Nash equilibrium: Characterization in the two-agent case (2008)
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