Abstract
We address the following basic question: How should parties, with possibly different risk-attitudes and beliefs, who are contemplating creating a partnership, divide uncertain future profits? We assume that the formula for division of profits is a result of negotiations, and model it via the Nash-bargaining-like solution (NBLS). After characterizing the optimal contract, using calculus of variations, we assume a linear contract and find its optimal parameters for various cases of interest. We also consider the implications of an asymmetric NBLS.
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Gerchak, Y., Khmelnitsky, E. Bargaining over shares of uncertain future profits. EURO J Decis Process 7, 55–68 (2019). https://doi.org/10.1007/s40070-019-00095-4
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DOI: https://doi.org/10.1007/s40070-019-00095-4