Joint Projects Without Commitment

Joint Projects Without Commitment

By
Anat R. Admati, Motty Perry
Review of Economic Studies.
1991, Vol. 58, Issue 2, Pages 259-276

This paper concerns the pattern of contributions to a joint project when commitments and enforceable contracts are not available. We analyse a game in which partners alternate in making contributions to the project until the project is completed. Contributions are sunk when they are made. The game has a unique subgame perfect equilibrium path, which is inefficient in the sense that socially desirable projects may not be completed. By contrast, in a “subscription game” in which the cost of the contribution is borne only if and when the contributions committed to the project cover its cost, the outcome is efficient.