Year: 2001
Type: article
Abstract: This paper investigates a team production problem where two parties invest sequentially to generate a joint surplus. We find that the first best can be implemented even if the investment return is highly uncertain. The optimal contract entails a basic dichotomy: it is a simple option contract if investments of both parties are substitutive, and a linear incentive contract if they are complementary. These arrangements can be interpreted in terms of asset ownership, and renegotiation arises in equilibrium after the first agent has invested.
Author: Christoph Lülfesmann
Language: English
Topic: Game Theory and Applications
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2036017485