Efficient partnership dissolution under buy-sell clauses
AbstractWhen a partnership comes to an end, partners have to determine the terms of the dissolution. A well known way to do so is by enforcing a buy-sell clause. Under its rules 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. It is well known that in a model with private valuations this dissolution rule may generate inefficient allocations. However, we show that if partners negotiate for the advantage of being chooser, then buy-sell clauses result in an ex-post efficient outcome. We argue that this endogenous selection of the proposer is consistent with how buysell clauses are drafted in practice. For an example with interdependent valuations, we further show that the buy-sell clause can perform better than an auction.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we072816.
Date of creation: Dec 2006
Date of revision:
Other versions of this item:
- María-Angeles de Frutos & Thomas Kittsteiner, 2008. "Efficient partnership dissolution under buy-sell clauses," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 184-198.
- Kittsteiner, T. & De Frutos & M-A, 2004. "Efficient Partnership Dissolution under Buy/Sell Clauses," Econometric Society 2004 Latin American Meetings 314, Econometric Society.
- Maria Angeles de Frutos & Thomas Kittsteiner, 2004. "Efficient partnership dissolution under buy/sell clauses," Bonn Econ Discussion Papers bgse1_2004, University of Bonn, Germany, revised Jul 2004.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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