Non-cooperative investment in partnerships and their termination

This paper investigates how partners (firms or husband and wife) should invest into an uncertain stock that provides a common good, when to stop investments and when to end their partnership. The assumption of lumpy investments leads to a real option problem which is solved for the cooperative and non-cooperative solutions. Yet despite the analytical solution, numerical means are necessary to investigate economic consequences: strong incentives to free ride under competition even turning one of the options—to stop investment at high stock levels—into one of a negative value; in contrast, divorce remains a positively valued option.

[1]  E. Dockner,et al.  Differential Games in Economics and Management Science , 2001 .

[2]  Franz Wirl,et al.  Investment under uncertainty: calculating the value function when the Bellman equation cannot be solved analytically , 2004 .

[3]  S. Hoffman.  A Treatise on the Family , 2000 .

[4]  Chaim Fershtman,et al.  Dynamic voluntary provision of public goods , 1991 .

[5]  T. Bergstrom.  Economics in a Family Way , 1995 .

[6]  Franz Wirl,et al.  Dynamic voluntary provision of public goods: Extension to nonlinear strategies , 1996 .

[7]  F. Wirl.  International greenhouse gas emissions when global warming is a stochastic process , 2004 .

[8]  Steven Huddart,et al.  Accounting in Partnerships , 2003 .

[9]  Colin Rowat,et al.  Non-Linear Strategies in a Linear Quadratic Differential Game , 2006 .

[10]  Ngo Van Long,et al.  Differential Games in Economics and Management Science: List of tables , 2000 .

[11]  Martin Dufwenberg,et al.  Marital investments, time consistency and emotions , 2002 .

[12]  T. Bergstrom.  A survey of theories of the family , 1993 .

[13]  Max Keilbach,et al.  Concubinage or Marriage? Informal and Formal Cooperations for Innovation , 2005 .

[14]  B. Dumas.  Super contact and related optimality conditions , 1991 .

[15]  J. Ermisch.  An Economic Analysis of the Family , 2003 .

[16]  Eduardo S. Schwartz,et al.  Investment Under Uncertainty. , 1994 .

[17]  Gregory D. Hess,et al.  Marriage and Consumption Insurance: What’s Love Got to Do with It? , 2001, Journal of Political Economy.

[18]  E. Dockner,et al.  International Pollution Control: Cooperative versus Noncooperative Strategies , 1993 .

[19]  F. Wirl,et al.  A dynamic variant of the battle of the sexes , 1993 .

[20]  Paola Manzini,et al.  Going Alone Together: Joint Outside Options in Bilateral Negotiations , 2004 .

[21]  F. Wirl.  Energy Prices and Carbon Taxes under Uncertainty about Global Warming , 2007 .

[22]  K. Huisman.  Technology Investment: A Game Theoretic Real Options Approach , 2001 .

[23]  Franz Wirl,et al.  Intrafamiliar Consumption and Saving Under Altruism and Wealth Considerations , 2002 .

[24]  Antonio Estache.  PPI Partnerships vs. PPI Divorces in LDCs , 2006 .