Strategic Exits in Stochastic Partnerships

48 Pages Posted: 18 May 2021 Last revised: 10 Jul 2023

See all articles by Boli Xu

Boli Xu

Northwestern University

Date Written: July 9, 2023


We study dynamic partnerships where the output evolves stochastically, each player can exit at any time, and players who have exited continue to accrue some benefits if the remaining players keep contributing to the partnership. Players can strategically exit to free-ride on their partners' contributions, knowing that it may trigger subsequent exits of their partners. The unique Pareto optimal Markov perfect equilibrium may feature a \textit{curse of profitability}: An increase in the partnership's output may strictly harm all the players by exacerbating free-riding. Another main finding is that a partnership's ability to sustain cooperation is non-monotonic in its group size.

Keywords: partnerships, strategic exits, ripple effect, group size, stochastic stopping games.

JEL Classification: C73, D62, L22

Suggested Citation

Xu, Boli, Strategic Exits in Stochastic Partnerships (July 9, 2023). Available at SSRN: or

Boli Xu (Contact Author)

Northwestern University ( email )

2211 Campus Drive
Evanston, IL 60208
United States

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