The Design and Performance of Sharing Rules for a Partnership in Continuous Time |
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Authors: | Aldo Rustichini Roy Radner |
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Affiliation: | aC.O.R.E. Universite Catholique de Louvain, Louvain-la-Neuve, Belgium;bAT&;T Bell Laboratories, Murray Hill, New Jersey, 07974;cNew York University, New York, New York, 10003 |
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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 LiteratureClassification Numbers: C73, D2, D82. |
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