Efficiency in sequential partnerships

We consider sequential partnerships in which agents obtain non-verifiable i nformation about the actions taken by previous agents. For such partnership s a budget-balanced sharing rule exists that induces efficient production. The sharing rule has many desirable features: (1) it uniquely implements ef ficient production, (2) it does not rely on message games, (3) it does not rely on unlimited liability, and (4) it is robust to renegotiation. The rul e is furthermore simple; intuitive; and robust to sabotage, coalition forma tion, and noise. It also induces efficient production when agents obtain in complete information about previous actions. (C) 1999 Academic Press.