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Efficient partnership dissolution under buy-sell clauses

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  • Frutos, María Ángeles de
  • Kittsteiner, Thomas

Abstract

When a partnership comes to an end, partners have to determine the terms of the dissolution. A well known way to do so is by enforcing a buy-sell clause. Under its rules one party offers a price for the partnership and the other party chooses whether to sell her share or buy her partner´s share at this price. It is well known that in a model with private valuations this dissolution rule may generate inefficient allocations. However, we show that if partners negotiate for the advantage of being chooser, then buy-sell clauses result in an ex-post efficient outcome. We argue that this endogenous selection of the proposer is consistent with how buysell clauses are drafted in practice. For an example with interdependent valuations, we further show that the buy-sell clause can perform better than an auction.

Suggested Citation

  • Frutos, María Ángeles de & Kittsteiner, Thomas, 2006. "Efficient partnership dissolution under buy-sell clauses," UC3M Working papers. Economics we072816, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we072816
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Jianpei Li & Elmar Wolfstetter, 2010. "Partnership dissolution, complementarity, and investment incentives," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 529-552, July.
    3. repec:bpj:ajlecn:v:8:y:2017:i:1:p:17:n:3 is not listed on IDEAS
    4. Wasser, Cédric, 2013. "Bilateral k+1-price auctions with asymmetric shares and values," Games and Economic Behavior, Elsevier, vol. 82(C), pages 350-368.
    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. 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.
    7. repec:eee:matsoc:v:90:y:2017:i:c:p:100-110 is not listed on IDEAS
    8. Stefano Galavotti & Nozomu Muto & Daisuke Oyama, 2011. "On efficient partnership dissolution under ex post individual rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(1), pages 87-123, September.
    9. 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.
    10. 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.
    11. repec:dau:papers:123456789/5431 is not listed on IDEAS
    12. Kittsteiner, Thomas & Ockenfels, Axel & Trhal, Nadja, 2012. "Partnership dissolution mechanisms in the laboratory," Economics Letters, Elsevier, vol. 117(2), pages 394-396.
    13. Thomas F. Hellmann & Veikko Thiele, 2012. "A Theory of the Firm based on Partner Displacement," NBER Working Papers 18495, National Bureau of Economic Research, Inc.
    14. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.
    15. Van Essen, Matt & Wooders, John, 2016. "Dissolving a partnership dynamically," Journal of Economic Theory, Elsevier, vol. 166(C), pages 212-241.
    16. Jianpei Li & Yi Xue & Weixing Wu, 2013. "Partnership dissolution and proprietary information," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 40(2), pages 495-527, February.
    17. David Ettinger, 2008. "Auctions and Shareholdings," Annals of Economics and Statistics, GENES, issue 90, pages 233-257.
    18. 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.
    19. Rodrigo A. Velez & Antonio Nicolo, 2016. "Divide and compromise," Working Papers 20160710-001, Texas A&M University, Department of Economics.
    20. Li, Jianpei, 2009. "Partnership Dissolution and Proprietary Information," MPRA Paper 12505, University Library of Munich, Germany.

    More about this item

    Keywords

    Partnership dissolution;

    JEL classification:

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

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