Endogenous formation of competing partnerships with moral hazard

María Paz Espinosa, Inés Macho-Stadler

Research output: Contribution to journalArticleResearchpeer-review

12 Citations (Scopus)

Abstract

We analyze the formation of competing partnerships as a sequential game with moral hazard within coalitions. In a linear Cournot model, we show that when moral hazard is very severe, no partnerships will form. However, when moral hazard is not too severe, the coalition structure may be more concentrated than it is in the absence of moral hazard. Concerning industry profits, in the absence of moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome, but moral hazard may be responsible for an inefficiency of opposite sign. © 2003 Elsevier Science (USA). All rights reserved.
Original languageEnglish
Pages (from-to)172-183
JournalGames and Economic Behavior
Volume44
Issue number1
DOIs
Publication statusPublished - 1 Jul 2003

Keywords

  • Endogenous coalition formation
  • Moral hazard
  • Partnerships

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