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Some comments on free-riding in leontief partnerships

Hvide, Hans K.
Working paper
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URI
http://hdl.handle.net/11250/163635
Date
2001
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  • Discussion papers (FOR) [556]
Abstract
Holmström (1982) showed that free-riding is inevitable in partnerships where inputs are substitutes. Legros & Matthews (1993) and Vislie (1994) showed that when inputs are strict complements (Leontief technology), free-riding can be avoided with a linear sharing rule. This paper considers the robustness and some extensions of the positive result of LMV. First, I show that LMV’s result is not robust to the introduction of participation constraints and limited liability. However, I construct a novel rule that mitigates that problem. Second, I perturb the (deterministic) model of LMV. It turns out that free-riding is avoidable with noise added to joint output, while free-riding is inevitable when noise is added to individual productivity.
Publisher
Norwegian School of Economics and Business Administration. Department of Finance and Management Science
Series
Discussion paper
2001:2

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