Profit-sharing and efficient time allocation
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Profit-sharing and efficient time allocation Ruben Juarez1
· Kohei Nitta2 · Miguel Vargas3
Received: 9 August 2018 / Accepted: 27 September 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract Agents are endowed with time, which in turn is invested in projects that generate profit. A mechanism divides the profit generated by these agents depending on the allocation of time as well as the amount of profit made by every project. We study mechanisms that incentivize agents to contribute their time to a level that results in the maximal aggregate profit at the Nash equilibrium, regardless of the production functions involved (efficiency). Our main finding involves the characterization of all mechanisms that satisfy efficiency. Furthermore, within this class, we characterize the mechanisms that are monotone on the addition of time to agents as well as those monotone on the payoffs of the agents with respect to technological improvements in the generation of profit. The class of efficient mechanisms depends on the type of available projects and their connectedness. It expands earlier profit-sharing mechanisms that are independent of profit generation. Keywords Profit-sharing · Cost-sharing · Efficiency · Implementation
Financial support from the AFOSR Young Investigator Program, under Grant FA9550-11-1-0173, is greatly appreciated. We are also grateful for helpful comments made by two outstanding referees, Yves Sprumont, Justin Leroux, Katerina Sherstyuk, Gürdal Arslan, Hervé Moulin, William Thomson, Jingyi Xue, Chiu-Yu Ko, Rajnish Kumar. All remaining errors are our own.
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Ruben Juarez [email protected] Kohei Nitta [email protected] Miguel Vargas [email protected]
1
Department of Economics, University of Hawaii, 2424 Maile Way, Saunders Hall 542, Honolulu, HI 96822, USA
2
Department of Economics, Chiba University of Commerce, 1-3-1 Konodai, Ichikawa-shi, Chiba 272-8512, Japan
3
Department of Operations Research, Universidad Santiago de Cali, Santiago de Cali 760035, Colombia
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R. Juarez et al.
JEL Classification C72 · D44 · D71 · D82
1 Introduction Profit-sharing mechanisms are used widely by companies in order to increase profits. Such mechanisms include direct cash bonuses to employees, who are awarded based on their performance, either individually or collectively. For instance, under an employee stock ownership plan, a company will allocate shares of its stock, hence rewarding its employees based on aggregate profit.1 We study profit-sharing mechanisms where a planner (such as the owner, board, or manager of the company) is interested in maximizing profits, while the agents (employees) are interested in maximizing their own payoff. The design of an effective profit-sharing mechanism by a planner requires the alignment of his interests with the payoffs of the agents. Such an alignment has been widely explored in the wellestablished mechanism design literature under different constraints of information. On the one hand, issues of information concerning the preferences of
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