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Partnership dissolution with interdependent values

  • Philippe Jehiel
  • Ady Pauzner

We study partnership dissolution when valuations are interdependent and only one party is informed. In contrast with the case of private values (Cramton, Gibbons, and Klemperer, 1987), in which efficient trade is feasible whenever initial shares are about equal, there exists a wide class of situations in which full efficiency cannot be reached. In these cases, (i) the subsidy required to restore the first best is minimal when the entire ownership is allocated initially to one of the parties, and (ii) ruling out external subsidies, the second-best welfare is maximized when one of the parties initially has full ownership.

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Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 1 (03)
Pages: 1-22

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Handle: RePEc:bla:randje:v:37:y:2006:i:1:p:1-22
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