| Mari Paz Espinosa, Universidad del Pais Vasco Inez Macho-Stadler, Universitat Autonoma de Barcelona |
| Endogenous Formation of Partnership with Moral Hazard |
| Session: C-5-2 Sunday 13 August 2000 by Espinosa, Mari Paz |
| We analyze the formation of partnerships as a sequential choice-of-sizes game with moral hazard within coalitions; once formed, partnerships compete a la Cournot in the marketplace. We show that when moral hazard within coalitions is very severe, no partnership will form. However, when moral hazard is not too severe the coalition structure will be either similar or more concentrated than without moral hazard. We also show that, while without moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome, moral hazard may be responsible for an inefficiency of opposite sign. |
| Submitted paper full-text in .pdf |