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Dissolving (in)effective partnerships

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  • John Turner

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    Abstract

    This paper studies the problem of partnership dissolution in the context of asymmetric information. Past work shows that the initial share allocation, interdependence of partners’ valuations, and asymmetric control all affect the possibility of efficient dissolution. In this paper, I show, in a novel class of “cooperative” partnerships characterized by ex ante interdependence of valuations, that effectiveness is significantly more important than the initial share allocation. Intuitively, as the effectiveness of cooperation between partners (and thus partnership value) increases, the gains from dissolving decrease but the informational rents remain constant, so efficient dissolution is more difficult to achieve. For sufficiently high effectiveness, efficient dissolution is impossible for any initial share allocation. For sufficiently low effectiveness, however, efficient dissolution is possible for all initial share allocations. The possibility of efficient bargaining depends on the initial share allocation only for moderately effective partnerships. Copyright Springer-Verlag 2013

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    File URL: http://hdl.handle.net/10.1007/s00355-012-0690-2
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    Bibliographic Info

    Article provided by Springer in its journal Social Choice and Welfare.

    Volume (Year): 41 (2013)
    Issue (Month): 2 (July)
    Pages: 321-335

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    Handle: RePEc:spr:sochwe:v:41:y:2013:i:2:p:321-335

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    12. 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.
    13. Maxim Engers & Brian McManus, 2007. "Charity Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 953-994, 08.
    14. Steven R. Williams, 1999. "A characterization of efficient, bayesian incentive compatible mechanisms," Economic Theory, Springer, vol. 14(1), pages 155-180.
    15. Jianpei Li & Elmar Wolfstetter, 2010. "Partnership dissolution, complementarity, and investment incentives," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 529-552, July.
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