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Efficient Partnership Dissolution under Buy/Sell Clauses

Author

Listed:
  • Kittsteiner, T.
  • De Frutos
  • M-A

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 option. Under its rules one partner has to offer a price for the partnership and the other agent can choose whether she wants 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 here show that if partners negotiate for the advantage of being chooser, then this buy/ sell provision results in an ex-post efficient outcome. This result helps to explain why such provisions are so widely introduced in partnership contracts

Suggested Citation

  • Kittsteiner, T. & De Frutos & M-A, 2004. "Efficient Partnership Dissolution under Buy/Sell Clauses," Econometric Society 2004 Latin American Meetings 314, Econometric Society.
  • Handle: RePEc:ecm:latm04:314
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    References listed on IDEAS

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    1. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June.
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    6. HEGE, Ulrich & HAUSWALD, Robert, 2002. "Ownership and control in joint ventures: theory and evidence," HEC Research Papers Series 750, HEC Paris.
    7. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    8. Philippe Jehiel & Ady Pauzner, 2006. "Partnership dissolution with interdependent values," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 1-22, March.
    9. Engelbrecht-Wiggans Richard, 1994. "Auctions with Price-Proportional Benefits to Bidders," Games and Economic Behavior, Elsevier, vol. 6(3), pages 339-346, May.
    10. Reinhilde Veugelers & Katrien Kesteloot, 1996. "Bargained shares in joint ventures among asymmetric partners: Is the matthew effect catalyzing?," Journal of Economics, Springer, vol. 64(1), pages 23-51, February.
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    13. repec:dau:papers:123456789/4112 is not listed on IDEAS
    14. Claudio Mezzetti, 2004. "Mechanism Design with Interdependent Valuations: Efficiency," Econometrica, Econometric Society, vol. 72(5), pages 1617-1626, September.
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    Citations

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    Cited by:

    1. 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.
    2. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.
    3. 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.
    4. 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.
    5. Jianpei Li & Elmar Wolfstetter, 2010. "Partnership dissolution, complementarity, and investment incentives," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 529-552, July.
    6. repec:bpj:ajlecn:v:8:y:2017:i:1:p:17:n:3 is not listed on IDEAS
    7. Van Essen, Matt & Wooders, John, 2016. "Dissolving a partnership dynamically," Journal of Economic Theory, Elsevier, vol. 166(C), pages 212-241.
    8. 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.
    9. Wasser, Cédric, 2013. "Bilateral k+1-price auctions with asymmetric shares and values," Games and Economic Behavior, Elsevier, vol. 82(C), pages 350-368.
    10. 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.
    11. David Ettinger, 2008. "Auctions and Shareholdings," Annals of Economics and Statistics, GENES, issue 90, pages 233-257.
    12. 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.
    13. 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.
    14. 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.
    15. Nicolò, Antonio & Velez, Rodrigo A., 2017. "Divide and compromise," Mathematical Social Sciences, Elsevier, vol. 90(C), pages 100-110.
    16. 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.
    17. Li, Jianpei, 2009. "Partnership Dissolution and Proprietary Information," MPRA Paper 12505, University Library of Munich, Germany.
    18. repec:dau:papers:123456789/5431 is not listed on IDEAS
    19. Kittsteiner, Thomas & Ockenfels, Axel & Trhal, Nadja, 2012. "Partnership dissolution mechanisms in the laboratory," Economics Letters, Elsevier, vol. 117(2), pages 394-396.

    More about this item

    Keywords

    mechanism design; partnerships;

    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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