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Increasing Efficiency by Giving Up Some Profit

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  • Kazuhiko Mikami

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%.

Suggested Citation

  • Kazuhiko Mikami, 2000. "Increasing Efficiency by Giving Up Some Profit," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(2), pages 348-348, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200006)156:2_348:iebgus_2.0.tx_2-e
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    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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