This study has been prepared within the UNU-WIDER project on 'The political economy of social protection systems', which is part of a larger research project on 'The economics and politics of taxation and social protection'.
This article makes a start in characterizing the second-best solution to a smooth, symmetric partnership problem. It derives a more tractable formulation of the problem using a modified version of the condition in Legros and Matthews~1993!. Then it uses this formulation to show that the second-best solution will depend crucially on the curvature~third derivatives! of the production and disutility schedules. Moreover, it shows that the residual claimant solution will be second-best for sufficiently large partnerships.
This paper p resents a simple dynamic game in which a popula tion of "cheat ers" exerts a negative reputational externality on a population of honest firms. lt is shown how t his externality, coupled witli limited information flows amongst buyers, leads to there being "fraud" only in the init ial stages of trade. Nevertheless, t his temporary fraud can permanently prevent sorne honest sellers from trading with certain buyers. This happens exactly when, in a static setup , "honests" would not have been able to induce separation from "cheaters" by incurring initial losses. F ina lly, it is shown, in an elementary case, that increasing the number of honest sellers will genera lly increase welfare, though, in very special cases, it might not. R esume n Este trabajo presenta un j uego dinámico simple en el que una población d e empresas "tramposas" ejerce una externalidad negativa sobre una población d e empresas honestas. Se demuestra como esta externalidad en presencia de flujos limitados de información entre compradores, lleva a que un comercio fraudulento se dé solamente en etapas iniciales del intercambio. A pesar del caracter transitorio del comercio fraudulento, este puede llevar a que ciertos vendedores honestos sean permanentemente excluidos del intercambio. Esto sucede exactamente cuando, en un entorno estático, las empresas honestas no pueden dist inguirse de las deshonestas por v ia de incurrir en perdidas iniciales. Finalmente , demostramos en un caso elemental que incrementar el número d e empresas honestas no siempre incrementa el bienestar y, en ciertos casos muy especiales, pued e llevar a una reducción del bienestar
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