THE DESIGN AND PERFORMANCE OF SHARING RULES FOR A PARTNERSHIP IN CONTINUOUS-TIME

We study repeated partnerships with imperfect monitoring and risk neut rality. The interval between the partners' decisions, the delay, is gi ven but can be arbitrarily small. Each stage-game's output is Gaussian , with mean and variance depending on the partners' actions, making th e sequence of outcomes a discretization of a diffusion. A sharing rule is efficient if there is an equilibrium of the corresponding game who se outcomes are Pareto efficient; it is stable if these equilibria app roach a limit as;he delay approaches zero. We characterize partnership s for which there exist stable, efficient sharing rules, and describe the corresponding equilibria. (C) 1996 Academic Press, Inc.