Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/78424
Authors: 
Lülfesmann, Christoph
Year of Publication: 
2000
Series/Report no.: 
Bonn Econ Discussion Papers 6/2001
Abstract: 
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.
Subjects: 
Team Production
Asset Ownership
Sequential Investments
JEL: 
D23
K12
L23
Document Type: 
Working Paper

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