Scandinavian Working Papers in Economics

Discussion Papers of Business and Economics,
University of Southern Denmark, Department of Business and Economics

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

Jens Leth Hougaard (), Juan D. Moreno-Ternero (), Mich Tvede () and Lars Peter Østerdal ()
Additional contact information
Jens Leth Hougaard: Department of Food and Resource Economics, Postal: University of Copenhagen, Rolighedsvej 25, DK-1958 Frederiksberg C, Denmark
Juan D. Moreno-Ternero: Department of Economics, Postal: Universidad Pablo de Olavide, Spain, and CORE, Université catholique de Louvain
Mich Tvede: Newcastle University, Postal: UK
Lars Peter Østerdal: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark

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

JEL-codes: C71; I10

18 pages, February 19, 2015

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