Business Partnerships Without Commitment

Kyoung Jin Choi, Jungho Lee
2013 Social Science Research Network  
We investigate under what condition the first-best allocation without commitment is sustainable in a production economy. We find that allowing capital accumulation can help to sustain the first-best allocation, although it is known to create a distortion. In an economy with productivity shocks, gains from efficient resource allocation between agents can be so large that it can compensate for the increase in the outside option that arises when capital moves to the more productive agent from the
more » ... ive agent from the less productive agent. JEL classification number: D61, D90, E20, E22, E23
doi:10.2139/ssrn.2375531 fatcat:rtvohu3werccxl3n3yhg6h35uu