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Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts

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.

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File URL: http://www.economics.ualberta.ca/~/media/economics/FacultyAndStaff/WPs/WP2009-1-Landeo
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Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2009-1.

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Length: 58 pages
Date of creation: 22 Jan 2009
Date of revision: 01 Jul 2013
Handle: RePEc:ris:albaec:2009_001
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  1. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 131-171, January.
  2. 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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  7. Peter Cramton & Joseph S. Tracy, 1994. "The Determinants of U.S. Labor Disputes," Papers of Peter Cramton 94jole, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  8. Fieseler, Karsten & Kittsteiner, Thomas & Moldovanu, Benny, 1999. "Partnerships, Lemons and Efficient Trade," Sonderforschungsbereich 504 Publications 99-71, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  9. 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.
  10. 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.
  11. Deborah Minehart & Zvika Neeman, 1997. "Termination and Coordination in Partnerships," Papers 0083, Boston University - Industry Studies Programme.
  12. 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.
  13. Preston McAfee, R., 1992. "Amicable divorce: Dissolving a partnership with simple mechanisms," Journal of Economic Theory, Elsevier, vol. 56(2), pages 266-293, April.
  14. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  15. Mitzkewitz, Michael & Nagel, Rosemarie, 1993. "Experimental Results on Ultimatum Games with Incomplete Information," International Journal of Game Theory, Springer, vol. 22(2), pages 171-98.
  16. Philippe Jehiel & Ady Pauzner, 2006. "Partnership dissolution with interdependent values," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 1-22, 03.
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