Partnership Dissolution, Complementarity, and Investment Incentives
We study a partnership that anticipates its possible dissolution. In our model, partnerships form in order to take advantage of complementary skills; although new opportunities may arise that make partners’ skills useless. We characterize the optimal, incentive-compatible partnership contract that can be implemented by a simple call option, and then analyze the commonly used buy–sell provision. We show that this dissolution rule gives rise to inefficiency, either in the form of excessive dissolutions combined with underinvestment or efficient dissolutions combined with overinvestment. However, supplementing the buy–sell provision with the right to veto may restore efficiency.
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- María-Angeles de Frutos & Thomas Kittsteiner, 2008.
"Efficient partnership dissolution under buy-sell clauses,"
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- María Angeles de Frutos & Thomas Kittsteiner, 2006. "Efficient partnership dissolution under buy-sell clauses," Economics Working Papers we072816, Universidad Carlos III, Departamento de Economía.
- Maria Angeles de Frutos & Thomas Kittsteiner, 2004. "Efficient partnership dissolution under buy/sell clauses," Bonn Econ Discussion Papers bgse1_2004, University of Bonn, Germany, revised Jul 2004.
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406, Massachusetts Institute of Technology (MIT), Department of Economics.
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"Partnerships and Double Auctions with Interdependent Valuations,"
Sonderforschungsbereich 504 Publications
01-15, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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"Equilibrium Selection in Signaling Games,"
565, California Institute of Technology, Division of the Humanities and Social Sciences.
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