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Mechanisms for dividing labor and sharing revenue in joint ventures

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  • Keith Waehrer

Abstract

Organizing the productive efforts of firms participating in a joint venture involves assigning firms to tasks according to abilities. A multidimensional incentive problem arises when abilities are private information. In any equilibrium, it is better to be a firm who is a specialist rather than a generalist. However, generalists can expect to receive a larger allocation of revenue. If at least one firm is decisive to the profitability of the joint venture (i.e., if it can make a credible cost announcement that implies the joint venture earns zero profit), then the joint venture will not be able to implement a profit maximizing or cost minimizing production plan. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Keith Waehrer, 2004. "Mechanisms for dividing labor and sharing revenue in joint ventures," Review of Economic Design, Springer;Society for Economic Design, vol. 8(4), pages 465-477, April.
    • Handle: RePEc:spr:reecde:v:8:y:2004:i:4:p:465-477
    DOI: 10.1007/s10058-004-0115-5
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    Cited by:

    1. Jehiel, Philippe & Moldovanu, Benny, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 142, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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