Towards a Characterization of Second-Best Pure Strategy Solutions to a Smooth and Symmetric Partnership Problem.

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. Copyright 2002 by Blackwell Publishing Inc.