Efficient and Nearly Efficient Partnerships

Patrick Legros and Steven Matthews ()

No 991R, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: This paper shows in two ways that the degree to which free-riding diminishes the performance of deterministic partnerships may be less than has been generally thought. First, a necessary and sufficient condition is provided for a partnership to sustain full efficiency. It implies that many nontrivial partnerships sustain efficiency, such as generic ones with finite action spaces, and neoclassical ones with Leontief technologies. Second, approximate efficiency is shown to be achievable in a large class of partnerships, including ones with smooth and monotonic production and disutility functions. Approximate efficiency is achieved by mixed strategy equilibria: one partner takes, with small probability, an inefficient action. The degree to which efficiency is approximated is restricted only by the amount of liability the partners can bear. Nonetheless, their equilibrium payments are not arbitrarily large.

Keywords: partnership; moral hazard; organizations (search for similar items in EconPapers)
JEL-codes: D21 D23 L22 (search for similar items in EconPapers)
Date: 1992-07
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Efficient and Nearly-Efficient Partnerships (1993)
Working Paper: Efficient and nearly efficient partnerships (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:nwu:cmsems:991r

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