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Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts

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Author Info

  • Brooks, Richard

    () (Yale Law School)

  • Landeo, Claudia

    () (University of Alberta, Department of Economics)

  • Spier, Kathryn

    () (Harvard Law School)

Abstract

The operating agreements of many business ventures include clauses to facilitate the exit of joint owners. In so-called Texas Shootouts, one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at that named price. Despite their prevalence in real-world contracts, Texas Shootouts are rarely triggered. In our theoretical framework, sole ownership is more efficient than joint ownership. Negotiations are frustrated, however, by the presence of asymmetric information. In equilibrium, owners eschew buy-sell offers in favor of simple offers to buy or to sell shares and bargaining failures arise. Experimental data support these findings.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2009-1.

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Length: 58 pages
Date of creation: 22 Jan 2009
Date of revision:
Handle: RePEc:ris:albaec:2009_001

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Keywords: Exit Mechanisms for Joint Ownership Ventures; Texas Shootout Clauses; Buy-Sell Mechanisms; Shotgun Provisions; Russian Roulette Agreements; Put-Call Options; Cake-Cutting Rule; Bargaining with Common Values; Experiments; Ultimatum Exchange Environments with Endogenous Offer Types;

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References

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Cited by:
  1. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.
  2. Athanassoglou, Stergios & Brams, Steven J. & Sethuraman, Jay, 2010. "A note on the inefficiency of bidding over the price of a share," Mathematical Social Sciences, Elsevier, vol. 60(3), pages 191-195, November.
  3. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.

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