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Efficient Partnership Dissolution under Buy/Sell Clauses

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Author Info

  • Kittsteiner, T.
  • De Frutos
  • M-A

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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Bibliographic Info

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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Keywords: mechanism design; partnerships;

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  1. Bulow, Jeremy I & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
  2. de Frutos, M. Angeles, 2000. "Asymmetric Price-Benefits Auctions," Games and Economic Behavior, Elsevier, vol. 33(1), pages 48-71, October.
  3. 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.
  4. Kittsteiner, Thomas, 2003. "Partnerships and double auctions with interdependent valuations," Games and Economic Behavior, Elsevier, vol. 44(1), pages 54-76, July.
  5. Preston McAfee, R., 1992. "Amicable divorce: Dissolving a partnership with simple mechanisms," Journal of Economic Theory, Elsevier, vol. 56(2), pages 266-293, April.
  6. Frutos, María Ángeles de, . "Asymmetric Price-Benefit Auctions," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/4413, Universidad Carlos III de Madrid.
  7. Hauswald, Robert & Hege, Ulrich, 2003. "Ownership and Control in Joint Ventures: Theory and Evidence," CEPR Discussion Papers 4056, C.E.P.R. Discussion Papers.
  8. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Engelbrecht-Wiggans Richard, 1994. "Auctions with Price-Proportional Benefits to Bidders," Games and Economic Behavior, Elsevier, vol. 6(3), pages 339-346, May.
  10. 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.
  11. Philippe Jehiel & Ady Pauzner, 2006. "Partnership Dissolution with Interdependent Values," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 1-22, Spring.
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Cited by:
  1. Jianpei Li & Elmar Wolfstetter, 2010. "Partnership dissolution, complementarity, and investment incentives," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 529-552, July.
  2. 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.
  3. Stefano Galavotti & Nozomu Muto & Daisuke Oyama, 2011. "On efficient partnership dissolution under ex post individual rationality," Economic Theory, Springer, vol. 48(1), pages 87-123, September.
  4. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.
  5. Ettinger, David, 2008. "Auctions and shareholdings," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/5431, Université Paris-Dauphine.
  6. Li, Jianpei, 2009. "Partnership Dissolution and Proprietary Information," MPRA Paper 12505, University Library of Munich, Germany.
  7. 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.
  8. David Ettinger, 2008. "Auctions and shareholdings," Post-Print hal-00701303, HAL.

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