Scandinavian Working Papers in Economics
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Department of Business and Economics, University of Southern Denmark Discussion Papers of Business and Economics
Department of Business and Economics, University of Southern Denmark

No 2/2015:
Sharing the proceeds from a hierarchical venture

Jens Leth Hougaard (), Juan D. Moreno-Ternero (), Mich Tvede () and Lars Peter Østerdal ()

Abstract: We consider the problem of distributing the proceeds generated from a joint venture in which the participating agents are hierarchically organized. We characterize a family of allocation rules ranging from the so-called zero-transfer rule (which awards agents in the hierarchy their individually generated revenues) and the full-transfer rule (which awards all the proceeds to the agent at the top of the hierarchy). The intermediate rule of the family imposes a sequence of transfers along the hierarchy consistent with the so-called MIT strategy, recently singled out as an optimal social mobilization mechanism. Our benchmark model refers to the case of linear hierarchies, but we also extend the analysis to the case in which hierarchies convey a general tree structure.

Keywords: Hierarchies; Joint ventures; Resource allocation; Transfer rules; MIT strategy; Axiomatic characterization; (follow links to similar papers)

JEL-Codes: C71; I10; (follow links to similar papers)

18 pages, February 19, 2015

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