Partnership with Persistence

74 Pages Posted: 14 Jan 2019 Last revised: 1 Oct 2021

See all articles by Joao Ramos

Joao Ramos

Marshall School of Business - University of Southern California

Tomasz Sadzik

New York University (NYU)

Date Written: January 1, 2019

Abstract

We study a continuous-time model of partnership with persistence and imperfect state monitoring. Partners exert private e orts to shape the stock of fundamentals, which drives the pro ts of the partnership, and the pro ts are the only public signal. The near-optimal strongly symmetric equilibria are characterized by a novel differential equation that describes the supremum of equilibrium incentives for any level of relational capital. Under (almost) perfect monitoring of the fundamentals, the only equilibria are (approximately) stationary Markov. Imperfect monitoring helps sustain relational incentives and increases the partnership's value by extending the relevant time horizon for incentive provision. The results are consistent with the predominance of partnerships and relational incentives in environments where effort has long-term and qualitative impact and in which progress is hard to measure.

Keywords: partnership, dynamic games, continuous time, relational capital

JEL Classification: D21, D25, D82, D86

Suggested Citation

Ramos, Joao and Sadzik, Tomasz, Partnership with Persistence (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3308865 or http://dx.doi.org/10.2139/ssrn.3308865

Joao Ramos (Contact Author)

Marshall School of Business - University of Southern California ( email )

701 Exposition Boulevard, STE 205
Los Angeles, CA 90089-1422
United States

HOME PAGE: http://www.joaoaramos.com/

Tomasz Sadzik

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

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