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Profit sharing in unique Nash equilibrium: Characterization in the two-agent case

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  • Leroux, Justin

Abstract

Two agents jointly operate a decreasing marginal returns technology to produce a private good. We characterize the class of output-sharing rules for which the labor-supply game has a unique Nash equilibrium. It consists of two families: rules of the serial type which protect a small user from the negative externality imposed by a large user, and rules of the reverse serial type, where one agent effectively employs the other agent's labor. Exactly two rules satisfy symmetry; a result in sharp contrast with Moulin and Shenker's characterization of their serial mechanism as the unique cost-sharing rule satisfying the same incentives property [Moulin, H., Shenker, S., 1992. Serial cost sharing. Econometrica 60 (5), 1009-1037]. We also show that the familiar stand-alone test characterizes the class of fixed-path methods under our incentives criterion [Friedman, E.J., 2004. Strong monotonicity in surplus sharing. Econ. Theory 23, 643-658].

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  • Leroux, Justin, 2008. "Profit sharing in unique Nash equilibrium: Characterization in the two-agent case," Games and Economic Behavior, Elsevier, vol. 62(2), pages 558-572, March.
    • Handle: RePEc:eee:gamebe:v:62:y:2008:i:2:p:558-572
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    Cited by:

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    4. He Liu & Yun Bai & Zhiguang Huang & Han Qiao & Shouyang Wang, 2023. "Private banking development in China under two organizational structures: Economic analysis from an organizational innovation perspective," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-23, December.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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