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Efficient Partnership Dissolution under Buy/Sell Clauses

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Author Info
Kittsteiner, T.
De Frutos
M-A

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Abstract

When 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 option. Under its rules one partner has to offer a price for the partnership and the other agent can choose whether she wants 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 here show that if partners negotiate for the advantage of being chooser, then this buy/ sell provision results in an ex-post efficient outcome. This result helps to explain why such provisions are so widely introduced in partnership contracts

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 314.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:314

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Related research
Keywords: mechanism design; partnerships;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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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.:
  1. Reinhilde Veugelers & Katrien Kesteloot, 1996. "Bargained shares in joint ventures among asymmetric partners: Is the matthew effect catalyzing?," Journal of Economics, Springer, vol. 64(1), pages 23-51, February. [Downloadable!] (restricted)
  2. de Frutos, M. Angeles, 2000. "Asymmetric Price-Benefits Auctions," Games and Economic Behavior, Elsevier, vol. 33(1), pages 48-71, October. [Downloadable!] (restricted)
  3. Philippe Jehiel & Ady Pauzner, 2006. "Partnership Dissolution with Interdependent Values," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 1-22, Spring.
  4. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April. [Downloadable!] (restricted)
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  5. HEGE, Ulrich & HAUSWALD, Robert, 2002. "Ownership and control in joint ventures: theory and evidence," Les Cahiers de Recherche 750, HEC Paris. [Downloadable!]
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  6. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA. [Downloadable!]
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  7. Kittsteiner, Thomas, 2003. "Partnerships and double auctions with interdependent valuations," Games and Economic Behavior, Elsevier, vol. 44(1), pages 54-76, July. [Downloadable!] (restricted)
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  8. Preston McAfee, R., 1992. "Amicable divorce: Dissolving a partnership with simple mechanisms," Journal of Economic Theory, Elsevier, vol. 56(2), pages 266-293, April. [Downloadable!] (restricted)
  9. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  10. Benny Moldovanu, 2002. "How to Dissolve a Partnership," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(1), pages 66-, March.
  11. Engelbrecht-Wiggans Richard, 1994. "Auctions with Price-Proportional Benefits to Bidders," Games and Economic Behavior, Elsevier, vol. 6(3), pages 339-346, May. [Downloadable!] (restricted)
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Cited by:
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  1. Jianpei Li & Elmar Wolfstetter, 2004. "Partnership Dissolution, Complementarity, and Investment Incentives," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. Li, Jianpei, 2009. "Partnership Dissolution and Proprietary Information," MPRA Paper 12505, University Library of Munich, Germany. [Downloadable!]
  3. Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2005. "Termination Clauses in Partnerships," Industrial Organization 0509007, EconWPA. [Downloadable!]
    Other versions:
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