Talmudic division as a cartel rule

Abstract

Abstract This paper relates the problem of collusion in an oligopoly with the 2000-year-old Talmudic division rule. It is shown that the cartel agreement with sidepayments based on the Talmudic division rule induces truth-telling behavior in an oligopoly where firms produce a homogeneous good with constant marginal costs and the costs are private information. The Talmudic cartel agreement is implementable and efficient. Furthermore, it is ex post individually rational if there are more than two firms.