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| Author: | Sherstyuk, K. |
| Title: | Efficiency in partnership structures |
| Journal: | Journal of Economic Behavior and Organization
1998 : AUG, VOL. 36:3, p. 331-346 |
| Index terms: | CO-OPERATION TECHNOLOGY PRODUCTION EFFICIENCY |
| Language: | eng |
| Abstract: | Consider an economy where agents differ in production skills and abilities and are free to form production coalitions, or partnerships, with each other. Farrell and Scotchmer (1988) showed in Quaterly Journal of Economics 1988, VOL. 103:2, p. 279-97 that if partners are restricted to equal output sharing, in equilibrium the partnerships are inefficiently small. In this paper, another possible source of inefficiency is elaborated which is due to composition rather than size. Under the equal sharing constraint, high ability agents form partnerships with agents of similar ability levels. Yet, mixing of ability levels may be socially efficient. It is further investigated whether relaxing the equal sharing constraint corrects the inefficiency of equilibrium. |
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