Sharing Rules in Heterogeneous Partnerships: An Experiment

We experimentally investigate the welfare implications of two distinct output sharing rules in partnerships with a heterogeneous composition. In particular the paper examines the tradeoff between the potential benefits of a simple equal output sharing rule and a distribution rule that maximizes total welfare, the second best sharing rule. This output sharing rule, which is recommended, is unequal in heterogeneous production groups. The experimental setup is based on a team production technology model, where Nash equilibrium contributions are located in the interior of the set of feasible contributions. The results confirm that second best output sharing rules give higher welfare than equal ones when the two are different. Then, there is a trade off to be considered, when deciding on the team composition (the equal sharing rule is second best optimal in homogeneous partnerships), and when deciding the sharing rule given the group composition. We also find that the experimentally created wealth with equal sharing is higher than the anticipated from pure rational behavior because less skilled collaborating partners contribute with more input than anticipated. This is interpreted as evidence that less productive partners perceive a sense of unfairness when receive a similar share of output than the more productive ones, and decide to correspond with higher input contribution.