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Determining Values Using Options Contracts

Author

Listed:
  • Seiglie Carlos

    (Rutgers, State University of New Jersey – Economics, Newark, NJ, USA)

  • Xiang Jun

    () (Rutgers, State University of New Jersey – Economics and Global Affairs, 360 MLK blvd, Newark, NJ, USA)

Abstract

This paper presents a simple mechanism for allocating a single good in partnership dissolution. Since in the areas of probate, family, partnership and bankruptcy law the establishment of the value of assets is essential this mechanism can be useful. We illustrate its application for the case of determining the value of a house in a divorce proceeding. We show that when transactions costs are permitted, our mechanism shows a wider range of equilibrium outcomes than existing mechanisms such as Texas shootouts, implying it offers more equal and fair divisions. In addition, if private valuations of an asset are allowed, the proposed mechanism has an advantage based on the efficiency criterion compared to Texas shootouts.

Suggested Citation

  • Seiglie Carlos & Xiang Jun, 2017. "Determining Values Using Options Contracts," Asian Journal of Law and Economics, De Gruyter, vol. 8(1), pages 1-17, April.
  • Handle: RePEc:bpj:ajlecn:v:8:y:2017:i:1:p:17:n:3
    as

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    References listed on IDEAS

    as
    1. Crawford, Vincent P, 1979. "A Procedure for Generating Pareto-Efficient Egalitarian-Equivalent Allocations," Econometrica, Econometric Society, vol. 47(1), pages 49-60, January.
    2. 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.
    3. 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.
    4. Kittsteiner, Thomas, 2003. "Partnerships and double auctions with interdependent valuations," Games and Economic Behavior, Elsevier, vol. 44(1), pages 54-76, July.
    5. 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.
    6. Preston McAfee, R., 1992. "Amicable divorce: Dissolving a partnership with simple mechanisms," Journal of Economic Theory, Elsevier, vol. 56(2), pages 266-293, April.
    7. 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.
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    More about this item

    Keywords

    conflict; divorce; options;

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