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Endogenous Formation of Competing Partnership with Moral Hazard

Maria Paz Espinosa () and Inés Macho Stadler
Authors registered in the RePEc Author Service: Ines Macho-Stadler ()

No 2002-34, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: We analyze the formation of partnerships as a sequential choice-of-sizes game with moral hazard within coalitions; once formed, partnerships compete a la Cournot in the marketplace. We show that when moral hazard within coalitions is very severe, no partnership will form. However, when moral hazard is not too severe the coalition structure will be either similar or more concentrated than without moral hazard. We also show that, while without moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome, moral hazard may be responsible for an inefficiency of opposite sign.

Keywords: endogenous coalition formation; moral hazard; partnerships (search for similar items in EconPapers)
Date: 2002-09
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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