Economic Theory

, Volume 48, Issue 1, pp 87–123

On efficient partnership dissolution under ex post individual rationality

Research Article

DOI: 10.1007/s00199-010-0540-3

Cite this article as:
Galavotti, S., Muto, N. & Oyama, D. Econ Theory (2011) 48: 87. doi:10.1007/s00199-010-0540-3

Abstract

This paper studies ex post individually rational, efficient partnership dissolution in a setting with interdependent valuations. We derive a sufficient condition that ensures the existence of an efficient dissolution mechanism that satisfies Bayesian incentive compatibility, ex post budget balancedness, and ex post individual rationality. For equal-share partnerships, we show that our sufficient condition is satisfied for any symmetric type distribution whenever the interdependence in valuations is non-positive. This result improves former existence results, demonstrating that the stronger requirement of ex post individual rationality does not always rule out efficiency. We also show that if we allow for two-stage revelation mechanisms, in which agents report their realized payoffs from the allocation, as well as imposing penalties off the equilibrium path, efficient dissolution is always possible even when the interdependence is positive. We further discuss the possibility of efficient dissolution with ex post quitting rights.

Keywords

Mechanism designEfficient tradeEx post individual rationalityGroves mechanismInterdependent valuation

JEL Classification

D02D40D44D82C72

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Department of Decision MathematicsUniversity of FlorenceFlorenceItaly
  2. 2.Graduate School of EconomicsHitotsubashi UniversityTokyoJapan