Bargaining over shares of uncertain future profits

Yigal Gerchak () and Eugene Khmelnitsky ()
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Yigal Gerchak: Tel Aviv University
Eugene Khmelnitsky: Tel Aviv University

EURO Journal on Decision Processes, 2019, vol. 7, issue 1, No 4, 55-68

Abstract: Abstract We address the following basic question: How should parties, with possibly different risk-attitudes and beliefs, who are contemplating creating a partnership, divide uncertain future profits? We assume that the formula for division of profits is a result of negotiations, and model it via the Nash-bargaining-like solution (NBLS). After characterizing the optimal contract, using calculus of variations, we assume a linear contract and find its optimal parameters for various cases of interest. We also consider the implications of an asymmetric NBLS.

Keywords: Profit sharing; Nash bargaining; 91A12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s40070-019-00095-4

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