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Efficient partnership dissolution under buy-sell clauses

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  • María-Angeles de Frutos
  • Thomas Kittsteiner

Abstract

Buy-sell clauses are commonly used contractual provisions to determine the terms of dissolution of partnerships. Under them, one party offers a price for the partnership and the other party chooses whether to sell her share or buy her partner's share at this price. We point out that the selection of the proposing partner is essential for the performance of the clause. Moreover, if partners negotiate for the advantage of being the chooser, then buy-sell clauses result in an ex post efficient outcome. Such endogenous selection is consistent with how buy-sell clauses are drafted in practice. Copyright (c)2008, RAND.

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Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 1 ()
Pages: 184-198

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Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:184-198

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  1. Engelbrecht-Wiggans Richard, 1994. "Auctions with Price-Proportional Benefits to Bidders," Games and Economic Behavior, Elsevier, Elsevier, vol. 6(3), pages 339-346, May.
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Cited by:
  1. Landeo, Claudia & Spier, Kathryn, 2013. "Shotgun Mechanisms for Common-Value Partnerships: The Unassigned-Offeror Problem," Working Papers 2013-10, University of Alberta, Department of Economics.
  2. Jianpei Li & Elmar Wolfstetter, 2010. "Partnership dissolution, complementarity, and investment incentives," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 529-552, July.
  3. Richard R. W. Brooks & Claudia M. Landeo & Kathryn E. Spier, 2010. "Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 41(4), pages 649-673.
  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. David Ettinger, 2008. "Auctions and shareholdings," Post-Print, HAL hal-00701303, HAL.
  6. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, Elsevier, vol. 54(5), pages 718-732, July.
  7. 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.
  8. Thomas F. Hellmann & Veikko Thiele, 2012. "A Theory of the Firm based on Partner Displacement," NBER Working Papers 18495, National Bureau of Economic Research, Inc.
  9. Stefano Galavotti & Nozomu Muto & Daisuke Oyama, 2011. "On efficient partnership dissolution under ex post individual rationality," Economic Theory, Springer, Springer, vol. 48(1), pages 87-123, September.
  10. Kittsteiner, Thomas & Ockenfels, Axel & Trhal, Nadja, 2012. "Partnership dissolution mechanisms in the laboratory," Economics Letters, Elsevier, Elsevier, vol. 117(2), pages 394-396.
  11. Ettinger, David, 2008. "Auctions and shareholdings," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/5431, Paris Dauphine University.
  12. Li, Jianpei, 2009. "Partnership Dissolution and Proprietary Information," MPRA Paper 12505, University Library of Munich, Germany.
  13. Wasser, Cédric, 2013. "Bilateral k+1-price auctions with asymmetric shares and values," Games and Economic Behavior, Elsevier, Elsevier, vol. 82(C), pages 350-368.
  14. John Turner, 2013. "Dissolving (in)effective partnerships," Social Choice and Welfare, Springer, Springer, vol. 41(2), pages 321-335, July.

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