 Club enlargement: early versus late admittanceMike Burkart and Klaus Wallner LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: 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 member, but reform is costly. The club chooses between early admittance, where entry is conditioned on completed reform. Under the optimal enlargement strategy of the club, wealthy 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 late. 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, the applicant's 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. Keywords: club theory; incomplete contracts; reform incentives; governance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119099 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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