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Dissolving a Partnership Efficiently

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Abstract

Several partners jointly own an asset that may be traded among them. Each partner has a valuation for the asset; the valuations are known privately and drawn independently from a common probability distribution. We characterize the set of all incentive-compatible and interim- individually- rational trading mechanisms, and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership ex post efficiently. A bidding game is constructed that achieves such dissolution whenever it is possible. Despite incomplete information about the valuation of the asset, a partnership can be dissolved ex post efficiently provided no single partner owns too large a share; this contrasts with Myerson and Satterthwaite's result that ex post efficiency cannot be achieved when the asset is owned by a single party.

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File URL: http://www.cramton.umd.edu/papers1984-1989/87econ-dissolving-a-partnership-efficiently.pdf
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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 87econ.

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Length: 18 pages
Date of creation: 1987
Date of revision: 09 Jun 1998
Publication status: Published in Econometrica, 55:3, May 1987, pages 615-632. Reprinted in Paul Klemperer, ed., The Economic Theory of Auctions, Volume 2, Cheltenham, UK: Edward Elgar, 2000.
Handle: RePEc:pcc:pccumd:87econ

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Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu

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Keywords: Auctions; Trading Machanisms; Efficiency; Public Goods;

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References

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  1. Wilson, Robert B, 1985. "Incentive Efficiency of Double Auctions," Econometrica, Econometric Society, vol. 53(5), pages 1101-15, September.
  2. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Thomas A. Gresik & Mark A. Satterthwaite, 1985. "The Rate At Which a Simple Market Becomes Efficient as the Number of Traders Increases: An Asymptotic Result for Optimal Trading Mechanisms," Discussion Papers 708, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. 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.
  5. Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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