IDEAS home Printed from https://ideas.repec.org/a/bla/randje/v41y2010i4p649-673.html
   My bibliography  Save this article

Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts

Author

Listed:
  • Richard R. W. Brooks
  • Claudia M. Landeo
  • Kathryn E. Spier

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. Copyright (c) 2010, RAND..

Suggested Citation

  • Richard R. W. Brooks & Claudia M. Landeo & Kathryn E. Spier, 2010. "Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 649-673.
  • Handle: RePEc:bla:randje:v:41:y:2010:i:4:p:649-673
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1756-2171.2010.00115.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Vincent, Daniel R., 1989. "Bargaining with common values," Journal of Economic Theory, Elsevier, vol. 48(1), pages 47-62, June.
    3. Crawford, Vincent P, 1979. "A Procedure for Generating Pareto-Efficient Egalitarian-Equivalent Allocations," Econometrica, Econometric Society, vol. 47(1), pages 49-60, January.
    4. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 131-171.
    5. Vincent P. Crawford, 1977. "A Game of Fair Division," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 235-247.
    6. Davis, Douglas D. & Holt, Charles a., 1993. "Experimental economics: Methods, problems and promise," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 8(2), pages 179-212.
    7. Mitzkewitz, Michael & Nagel, Rosemarie, 1993. "Experimental Results on Ultimatum Games with Incomplete Information," International Journal of Game Theory, Springer;Game Theory Society, vol. 22(2), pages 171-198.
    8. María-Angeles de Frutos & Thomas Kittsteiner, 2008. "Efficient partnership dissolution under buy-sell clauses," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 184-198.
    9. Deborah Minehart & Zvika Neeman, 1999. "Termination and Coordination in Partnerships," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(2), pages 191-221, June.
    10. Kittsteiner, Thomas, 2003. "Partnerships and double auctions with interdependent valuations," Games and Economic Behavior, Elsevier, vol. 44(1), pages 54-76, July.
    11. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
    12. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
    13. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    14. Preston McAfee, R., 1992. "Amicable divorce: Dissolving a partnership with simple mechanisms," Journal of Economic Theory, Elsevier, vol. 56(2), pages 266-293, April.
    15. Raymond Deneckere & Meng-Yu Liang, 2006. "Bargaining with Interdependent Values," Econometrica, Econometric Society, vol. 74(5), pages 1309-1364, September.
    16. Richard R. W. Brooks & Claudia M. Landeo & Kathryn E. Spier, 2010. "Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 649-673.
    17. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
    18. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 87-130, Supplemen.
    19. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    20. Philippe Jehiel & Ady Pauzner, 2006. "Partnership dissolution with interdependent values," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 1-22, March.
    21. Kittsteiner, Thomas & Ockenfels, Axel & Trhal, Nadja, 2012. "Partnership dissolution mechanisms in the laboratory," Economics Letters, Elsevier, vol. 117(2), pages 394-396.
    22. Hoffman, Elizabeth & McCabe, Kevin A & Smith, Vernon L, 1996. "On Expectations and the Monetary Stakes in Ultimatum Games," International Journal of Game Theory, Springer;Game Theory Society, vol. 25(3), pages 289-301.
    23. Croson, Rachel T. A., 1996. "Information in ultimatum games: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 197-212, August.
    24. Vincent P. Crawford, 1980. "A Self-administered Solution of the Bargaining Problem," Review of Economic Studies, Oxford University Press, vol. 47(2), pages 385-392.
    25. Fieseler, Karsten & Kittsteiner, Thomas & Moldovanu, Benny, 2003. "Partnerships, lemons, and efficient trade," Journal of Economic Theory, Elsevier, vol. 113(2), pages 223-234, December.
    26. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    27. Cramton, Peter C & Tracy, Joseph S, 1994. "The Determinants of U.S. Labor Disputes," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 180-209, April.
    28. Benny Moldovanu, 2002. "How to Dissolve a Partnership," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(1), pages 1-66, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Claudia M. Landeo & Kathryn E. Spier, 2016. "Stipulated Damages as a Rent-Extraction Mechanism: Experimental Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(2), pages 235-273, June.
    2. Ludwig Ensthaler & Thomas Giebe & Jianpei Li, 2014. "Speculative partnership dissolution with auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 18(2), pages 127-150, June.
    3. Patrick Herbst & Uwe Walz, 2017. "The Design of Vertical R&D Collaborations," Economica, London School of Economics and Political Science, vol. 84(333), pages 54-77, January.
    4. Landeo, Claudia, 2012. "Exclusionary Vertical Restraints and Antitrust: Experimental Law and Economics Contributions," Working Papers 2012-24, University of Alberta, Department of Economics.
    5. Wilson, Alistair J. & Wu, Hong, 2017. "At-will relationships: How an option to walk away affects cooperation and efficiency," Games and Economic Behavior, Elsevier, vol. 102(C), pages 487-507.
    6. repec:bpj:ajlecn:v:8:y:2017:i:1:p:17:n:3 is not listed on IDEAS
    7. SEMPERE-MONERRIS, J.J. & MAULEON, Ana & VANNETELBOSCH, Vincent, "undated". "Contractually Stable Alliances," CORE Discussion Papers RP 2739, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Richard R. W. Brooks & Claudia M. Landeo & Kathryn E. Spier, 2010. "Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 649-673.
    9. John Wooders & Matt Van Essen, 2018. "Dual Auctions for Assigning Winners and Compensating Losers," Working Papers 20180013, New York University Abu Dhabi, Department of Social Science, revised Jan 2018.
    10. Landeo, Claudia & Spier, Kathryn, 2015. "Stipulated Damages as a Rent-Extraction Mechanism: Experimental Evidence," Working Papers 2015-10, University of Alberta, Department of Economics.
    11. Landeo, Claudia M. & Spier, Kathryn E., 2013. "Shotgun mechanisms for common-value partnerships: The unassigned-offeror problem," Economics Letters, Elsevier, vol. 121(3), pages 390-394.
    12. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
    13. 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 2012-15, University of Alberta, Department of Economics, revised 01 Oct 2012.
    14. Brown, Alexander L. & Velez, Rodrigo A., 2016. "The costs and benefits of symmetry in common-ownership allocation problems," Games and Economic Behavior, Elsevier, vol. 96(C), pages 115-131.
    15. Yuan Ju, 2013. "Efficiency and compromise: a bid-offer–counteroffer mechanism with two players," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 501-520, May.
    16. Kittsteiner, Thomas & Ockenfels, Axel & Trhal, Nadja, 2012. "Partnership dissolution mechanisms in the laboratory," Economics Letters, Elsevier, vol. 117(2), pages 394-396.
    17. 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 79810, Verein für Socialpolitik / German Economic Association.
    18. Christophe Bravard & Sudipta Sarangi & ANA MAULEON & JOSE J. SEMPERE-MONERRIS & VINCENT VANNETELBOSCH, 2016. "Contractually Stable Alliances," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(2), pages 212-225, April.
    19. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.
    20. repec:pit:wpaper:532 is not listed on IDEAS
    21. 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.
    22. Van Essen, Matt & Wooders, John, 2016. "Dissolving a partnership dynamically," Journal of Economic Theory, Elsevier, vol. 166(C), pages 212-241.
    23. John Turner, 2013. "Dissolving (in)effective partnerships," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(2), pages 321-335, July.
    24. Landeo, Claudia, 2015. "Law and Economics and Tort Litigation Institutions: Theory and Experiments," Working Papers 2015-12, University of Alberta, Department of Economics.
    25. Landeo, Claudia & Spier, Kathryn, 2012. "It Takes Three to Tango: An Experimental Study of Contracts with Stipulated Damages," Working Papers 2012-14, University of Alberta, Department of Economics.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:41:y:2010:i:4:p:649-673. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/randdus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.