Bargaining over shares of uncertain future profits

Research output: Contribution to journalArticlepeer-review

Abstract

We address the following basic question: How should parties, with possibly different risk-attitudes and beliefs, who are contemplating creating a partnership, divide uncertain future profits? We assume that the formula for division of profits is a result of negotiations, and model it via the Nash-bargaining-like solution (NBLS). After characterizing the optimal contract, using calculus of variations, we assume a linear contract and find its optimal parameters for various cases of interest. We also consider the implications of an asymmetric NBLS.

Original languageEnglish
Pages (from-to)55-68
Number of pages14
JournalEURO Journal on Decision Processes
Volume7
Issue number1-2
DOIs
StatePublished - 1 May 2019

Keywords

  • 91A12
  • Nash bargaining
  • Profit sharing

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