Team Production, Sequential Investments and Stochastic Payoffs

Arbeitspapier

We investigate a team production problem where two parties sequentially invest to generate a joint surplus. In this framework, it is possible to implement the first best even if the investment return is highly uncertain. The optimal contract entails a basic dichotomy: it is a simple option contract if the investments of both parties are substitutive, and a linear incentive contract if they are complementary. These schemes can be interpreted in terms of asset ownership: for the case of substitutive investments, a conditional ownership structure is optimal while for complementary investments shared equity in combination with a bonus component renders efficiency feasible. In either case, the parties renegotiate the initial arrangement after the first party invested.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 6/2001

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Contract Law ; Organization of Production
• Subject: Team Production ; Asset Ownership ; Sequential Investments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lülfesmann, Christoph
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/78424
• Last update: 10.03.2025, 11:43 AM CET