Endogenous Formation of Partnerships with Moral Hazard
نویسندگان
چکیده
We analyze the formation of partnerships as a sequential game with moral hazard within coalitions; once formed, partnerships compete a la Cournot in the marketplace. When moral hazard within coalitions is very severe, no partnership will form. However, we show that when moral hazard is not too severe the coalition structure will be either similar to or more concentrated than it is without moral hazard. Concerning industry profits, without 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.
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