Increasing Efficiency by Giving Up Some Profit

Kazuhiko Mikami

Journal of Institutional and Theoretical Economics (JITE), 2000, vol. 156, issue 2, 348-

Abstract: This paper addresses a joint production model in which individuals may become better off by giving up some profit. The key to this phenomenon is the existence of multiple inefficient equilibria, in which one individual makes an excessive effort and the other individual free-rides on it. In order to avoid all such simultaneous inefficient equilibria, it may be necessary to reduce all individuals' profit shares simultaneously so that none of them have incentives to make an excessive effort, which in turn would prevent free-riding behavior. This results in a total profit share that is less than 100%.

JEL-codes: L22 L23 (search for similar items in EconPapers)
Date: 2000
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