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Performance and Turnover in a Stochastic Partnership (2010)
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BibTeX
@MISC{Mcadams10performanceand,
author = {David Mcadams},
title = {Performance and Turnover in a Stochastic Partnership},
year = {2010}
}
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Abstract
This paper characterizes the welfare-maximizing equilibrium performance and duration of stochastic partnerships, in an economy in which partners choose each period costly observable efforts, voluntary wages, and whether to leave their current relationship to form a new partnership. Welfare comparative statics are also provided: higher states are associated with higher joint payoffs and, in the special case of an exogenous stochastic process, with both higher joint stage-game and joint continuation payoffs as well as longer-lasting relationships. Unlike in non-stochastic repeated games with re-matching, (i) equilibrium social welfare is maximized by renegotiation-proof play within each partnership and (ii) maximal equilibrium welfare is strictly decreasing in the cost of partnership formation. 1
Keyphrases
stochastic partnership welfare-maximizing equilibrium performance special case maximal equilibrium welfare longer-lasting relationship joint payoff current relationship new partnership partnership formation equilibrium social welfare non-stochastic repeated game voluntary wage renegotiation-proof play joint continuation payoff welfare comparative static joint stage-game period costly observable effort exogenous stochastic process
