The design and performance of sharing rules for a partnership in continuous time

Aldo Rustichini, Roy Radner

Research output: Contribution to journalArticlepeer-review

Abstract

We study repeated partnerships with imperfect monitoring and risk neutrality. The interval between the partners' decisions, the delay, is given but can be arbitrarily small. Each stage-game's output is Gaussian, with mean and variance depending on the partners' actions, making the sequence of outcomes a discretization of a diffusion. A sharing rule is efficient if there is an equilibrium of the corresponding game whose outcomes are Pareto efficient; it is stable if these equilibria approach a limit as the delay approaches zero. We characterize partnerships for which there exist stable, efficient sharing rules, and describe the corresponding equilibria. Journal of Economic Literature Classification Numbers: C73, D2, D82.

Original languageEnglish (US)
Pages (from-to)245-265
Number of pages21
JournalGames and Economic Behavior
Volume12
Issue number2
DOIs
StatePublished - Feb 1996

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