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

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  • 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: 01 Jul 2013
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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Cited by:
  1. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, Elsevier, vol. 54(5), pages 718-732, July.
  2. MAULEON, Ana & SEMPERE-MONERRIS, Jose & VANNETELBOSCH, Vincent, 2013. "Contractually stable alliances," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2013031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Yuan Ju, 2013. "Efficiency and compromise: a bid-offer–counteroffer mechanism with two players," International Journal of Game Theory, Springer, Springer, vol. 42(2), pages 501-520, May.
  4. Ludwig Ensthaler & Thomas Giebe & Jianpei Li, 2014. "Speculative partnership dissolution with auctions," Review of Economic Design, Springer, Springer, vol. 18(2), pages 127-150, June.
  5. 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, Elsevier, vol. 60(3), pages 191-195, November.
  6. Brünner, Tobias & Becker, Alice, 2013. "Bidding in common value fair division games," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79810, Verein für Socialpolitik / German Economic Association.
  7. Landeo, Claudia & Spier, Kathryn, 2013. "Shotgun Mechanisms for Common-Value Partnerships: The Unassigned-Offeror Problem," Working Papers, University of Alberta, Department of Economics 2013-10, University of Alberta, Department of Economics.
  8. Kittsteiner, Thomas & Ockenfels, Axel & Trhal, Nadja, 2012. "Partnership dissolution mechanisms in the laboratory," Economics Letters, Elsevier, Elsevier, vol. 117(2), pages 394-396.
  9. Landeo, Claudia & Nikitin, Maxim & Izmalkov, Sergei, 2012. "Playing against an Apparent Opponent: Incentives for Care, Litigation, and Damage Caps under Self-Serving Bias," Working Papers, University of Alberta, Department of Economics 2012-15, University of Alberta, Department of Economics, revised 01 Oct 2012.
  10. Landeo, Claudia & Spier, Kathryn, 2012. "It Takes Three to Tango: An Experimental Study of Contracts with Stipulated Damages," Working Papers, University of Alberta, Department of Economics 2012-14, University of Alberta, Department of Economics.
  11. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
  12. John Turner, 2013. "Dissolving (in)effective partnerships," Social Choice and Welfare, Springer, Springer, vol. 41(2), pages 321-335, July.
  13. Alistair Wilson & Hong Wu, 2014. "Dissolution of Partnerships in Infinitely Repeated Games," Working Papers, University of Pittsburgh, Department of Economics 532, University of Pittsburgh, Department of Economics, revised Aug 2014.

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