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Termination and Coordination in Partnerships

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  • Deborah Minehart
  • Zvika Neeman

Abstract

It is common practice for firms to pool their expertise by forming partnerships such as joint ventures and strategic alliances. A central organization problem in such partnerships is that managers may behave noncooperatively in order to advance the interests of their parent firms. We ask whether contracts can be designed so that managers will maximize total profits. We characterize first best contracts for a variety of environments and show that efficiency imposes some restrictions on the ownership shares. In addition, we evaluate the performance of two termination contracts that are widely used in practice: the shotgun rule and price competition. We find that although these contracts do not achieve full efficiency, they both perform well. We provide insight into when each rule is more efficient. Copyright (c) 1999 Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 8 (1999)
Issue (Month): 2 (06)
Pages: 191-221

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Handle: RePEc:bla:jemstr:v:8:y:1999:i:2:p:191-221

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Cited by:
  1. Chong-En Bai & Zhigang Tao & Changqi Wu, 2004. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 277-305, Summer.
  2. MAULEON, Ana & SEMPERE-MONERRIS, Jose & VANNETELBOSCH, Vincent, 2013. "Contractually stable alliances," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2013031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Brooks, Richard & Landeo, Claudia & Spier, Kathryn, 2009. "Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts," Working Papers 2009-1, University of Alberta, Department of Economics, revised 01 Jul 2013.
  4. Ludwig Ensthaler & Thomas Giebe & Jianpei Li, 2014. "Speculative partnership dissolution with auctions," Review of Economic Design, Springer, Springer, vol. 18(2), pages 127-150, June.
  5. Jianpei Li & Yi Xue & Weixing Wu, 2013. "Partnership dissolution and proprietary information," Social Choice and Welfare, Springer, Springer, vol. 40(2), pages 495-527, February.

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