Partnership Dissolution, Complementarity, and Investment Incentives
AbstractWe study a partnership that anticipates its possible dissolution. In our model, partnerships form in order to take advantage of complementary skills; although new opportunities may arise that make partners’ skills useless. We characterize the optimal, incentive-compatible partnership contract that can be implemented by a simple call option, and then analyze the commonly used buy–sell provision. We show that this dissolution rule gives rise to inefficiency, either in the form of excessive dissolutions combined with underinvestment or efficient dissolutions combined with overinvestment. However, supplementing the buy–sell provision with the right to veto may restore efficiency.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1325.
Date of creation: 2004
Date of revision:
Other versions of this item:
- Jianpei Li & Elmar Wolfstetter, 2010. "Partnership dissolution, complementarity, and investment incentives," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 529-552, July.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-11-22 (All new papers)
- NEP-BEC-2004-11-22 (Business Economics)
- NEP-LAW-2004-11-22 (Law & Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Banks, Jeffrey S. & Sobel, Joel., 1985.
"Equilibrium Selection in Signaling Games,"
Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences
565, California Institute of Technology, Division of the Humanities and Social Sciences.
- Kittsteiner, T. & De Frutos & M-A, 2004.
"Efficient Partnership Dissolution under Buy/Sell Clauses,"
Econometric Society 2004 Latin American Meetings, Econometric Society
314, Econometric Society.
- María-Angeles de Frutos & Thomas Kittsteiner, 2008. "Efficient partnership dissolution under buy-sell clauses," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 39(1), pages 184-198.
- Maria Angeles de Frutos & Thomas Kittsteiner, 2004. "Efficient partnership dissolution under buy/sell clauses," Bonn Econ Discussion Papers, University of Bonn, Germany bgse1_2004, University of Bonn, Germany, revised Jul 2004.
- María Angeles de Frutos & Thomas Kittsteiner, 2006. "Efficient partnership dissolution under buy-sell clauses," Economics Working Papers we072816, Universidad Carlos III, Departamento de Economía.
- Kittsteiner, Thomas, 2003.
"Partnerships and double auctions with interdependent valuations,"
Games and Economic Behavior, Elsevier,
Elsevier, vol. 44(1), pages 54-76, July.
- Kittsteiner, Thomas, 2000. "Partnerships and Double Auctions with Interdependent Valuations," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, UniversitÃ¤t Mannheim;Sonderforschungsbereich 504, University of Mannheim 01-15, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Peter Cramton & Robert Gibbons & Paul Klemperer, 1987.
"Dissolving a Partnership Efficiently,"
Papers of Peter Cramton
87econ, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Peter Cramton & Robert Gibbons & Paul Klemperer, 1985. "Dissolving a Partnership Efficiently," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 406, Massachusetts Institute of Technology (MIT), Department of Economics.
- 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.
- Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2005.
"Termination Clauses in Partnerships,"
Industrial Organization, EconWPA
- Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2006. "Termination Clauses in Partnerships," Working Papers, UniversitÃ degli Studi di Milano-Bicocca, Dipartimento di Statistica 20060505, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
- 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.
- Li, Jianpei, 2009. "Partnership Dissolution and Proprietary Information," MPRA Paper 12505, University Library of Munich, Germany.
- Alistair Wilson & Hong Wu, 2014. "Dissolution of Partnerships in Infinitely Repeated Games," Working Papers, University of Pittsburgh, Department of Economics 532, University of Pittsburgh, Department of Economics, revised Aug 2014.
- John Turner, 2013. "Dissolving (in)effective partnerships," Social Choice and Welfare, Springer, Springer, vol. 41(2), pages 321-335, July.
- Bernhard Ganglmair, 2008. "Breakup of Repeat Transaction Contracts, Specific Investment, and Efficient Rent-Seeking," JEPS Working Papers, JEPS 08-001, JEPS.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.