Sharing the proceeds from a hierarchical venture

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Working paper
Jens Leth Hougaard, Juan D. Moreno-Ternero, Mich Tvede, Lars Peter Osterdal
CORE Discussion Paper
We consider the problem of distributing the proceeds generated from a joint venture in which the participating agents are hierarchically organized. We introduce and characterize a family of allocation rules where revenue `bubbles up' in the hierarchy. The family is exible enough to accommodate a no-transfer rule (where no revenue bubbles up) and a full-transfer rule (where all the revenues bubble up to the top of the hierarchy). Intermediate rules within the family are reminiscent of popular incentive mechanisms for social mobilization. Our benchmark model refers to the case of linear hierarchies, but we also extend the analysis to the case in which hierarchies may convey a general tree structure and include joint ownerships.
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