Ownership shares and choosing the best leader

Abstract

This paper examines production by two unequal partners and asks if there exist agreed upon ownership shares that generate the joint payoff maximizing efforts. Given the inherent complementarity, we show that for given shares, joint payoff is greater in a sequential rather than a simultaneous effort game. Also, joint payoff is typically higher when the more productive partner exerts effort late and when shares differ by less than productivity. Yet, each partner desires to exert effort late creating an unavoidable chicken game. Given that the partners remain owners with shares, this creates demand for a coordinator (not a full principal) to establish optimizing shares and the leader.