Economic Theory

, Volume 48, Issue 1, pp 87–123 | Cite as

On efficient partnership dissolution under ex post individual rationality

Research Article


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.


Mechanism design Efficient trade Ex post individual rationality Groves mechanism Interdependent valuation 

JEL Classification

D02 D40 D44 D82 C72 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Athanassoglou, S., Brams, S.J., Sethuraman, J.: Minimizing regret when dissolving a partnership, Mimeo (2008)Google Scholar
  2. Bergemann D., Välimäki J.: Information acquisition and efficient mechanism design. Econometrica 70, 1007–1033 (2002)CrossRefGoogle Scholar
  3. Chien, H.K.: Incentive efficient mechanisms for partnership dissolution, Mimeo (2007)Google Scholar
  4. Compte O., Jehiel P.: On quitting rights in mechanism design. Am Econ Rev Pap Proc 97, 137–141 (2007)CrossRefGoogle Scholar
  5. Compte O., Jehiel P.: Veto constraint in mechanism design: inefficiency with correlated types. Am Econ J Microecon 1, 182–206 (2009)CrossRefGoogle Scholar
  6. Cramton P., Gibbons R., Klemperer P.: Dissolving a partnership efficiently. Econometrica 55, 615–632 (1987)CrossRefGoogle Scholar
  7. Crémer J., McLean R.P.: Optimal selling strategies under uncertainty for a discriminating monopolist when demands are interdependent. Econometrica 53, 345–361 (1985)CrossRefGoogle Scholar
  8. Crémer J., McLean R.P.: Full extraction of the surplus in Bayesian and dominant strategy auctions. Econometrica 56, 1247–1257 (1988)CrossRefGoogle Scholar
  9. de Frutos M.A., Kittsteiner T.: Efficient partnership dissolution under buy-sell clauses. RAND J Econ 39, 184–198 (2008)Google Scholar
  10. Eliaz K., Spiegler R.: A mechanism-design approach to speculative trade. Econometrica 75, 875–884 (2007)CrossRefGoogle Scholar
  11. Eliaz K., Spiegler R.: Bargaining over bets. Games Econ Behav 66, 78–97 (2009)CrossRefGoogle Scholar
  12. Engelbrecht-Wiggans R., Katok E.: Regret in auctions: theory and evidence. Econ Theory 33, 81–101 (2007)CrossRefGoogle Scholar
  13. Fieseler, K., Kittsteiner, T., Moldovanu, B.: Partnerships, lemons, and efficient trade. SonderForschungsBereich 504 Working Paper 01–18, University of Mannheim (2001)Google Scholar
  14. Fieseler K., Kittsteiner T., Moldovanu B.: Partnerships, lemons, and efficient trade. J Econ Theory 113, 223–234 (2003)CrossRefGoogle Scholar
  15. Forges F.: Ex post individually rational trading mechanisms. In: Alkan, A., Aliprantis, C., Yannelis, N. (eds) Current Trends in Economics: Theory and Applications, Springer, Berlin (1999)Google Scholar
  16. Fujinaka, Y.: Efficiency, envy-freeness, and Bayesian incentive compatibility in economies with one indivisible good and money. Working Paper Series No. 203, Kobe University (2006)Google Scholar
  17. Galavotti S.: Bilateral trade with apositional traders. Res Econ 63, 172–188 (2009)CrossRefGoogle Scholar
  18. Galavotti, S., Muto, N., Oyama, D.: On efficient partnership dissolution under ex post individual rationality. Available at SSRN: (2008)
  19. Gershkov A., Schweinzer P.: When queueing is better than push and shove. Int J Game Theory 39, 409–430 (2010)CrossRefGoogle Scholar
  20. Hauswald, R., Hege, U.: Ownership and control in joint ventures, Mimeo (2006)Google Scholar
  21. Jehiel P., Pauzner A.: Partnership dissolution with interdependent values. RAND J Econ 37, 1–22 (2006)CrossRefGoogle Scholar
  22. Kittsteiner T.: Partnerships and double auctions with interdependent valuations. Games Econ Behav 44, 54–76 (2003)CrossRefGoogle Scholar
  23. Kosmopoulou G., Williams S.R.: The robustness of the independent private value model in Bayesian mechanism design. Econ Theory 12, 393–421 (1998)CrossRefGoogle Scholar
  24. Li, J.: Partnership dissolution and proprietary information, Mimeo (2009)Google Scholar
  25. Makowski L., Mezzetti C.: Bayesian and weakly robust first best mechanisms: characterizations. J Econ Theory 64, 500–519 (1994)CrossRefGoogle Scholar
  26. Matthews S.A., Postlewaite A.: Pre-play communication in two-person sealed-bid double auctions. J Econ Theory 48, 238–263 (1989)CrossRefGoogle Scholar
  27. McAfee R.P., Reny P.J.: Correlated information and mechanism design. Econometrica 60, 395–421 (1992)CrossRefGoogle Scholar
  28. Mezzetti, C.: Auction design with interdependent valuations: the generalized revelation principle, efficiency, full surplus extraction and information acquisition, Mimeo (2002)Google Scholar
  29. Mezzetti C.: Mechanism design with interdependent valuations: efficiency. Econometrica 72, 1617–1626 (2004)CrossRefGoogle Scholar
  30. Mezzetti C.: Mechanism design with interdependent valuations: surplus extraction. Econ Theory 31, 473–488 (2007)CrossRefGoogle Scholar
  31. Mitra M.: Mechanism design in queueing problems. Econ Theory 17, 277–305 (2001)CrossRefGoogle Scholar
  32. Morgan J.: Dissolving a partnership (un)fairly. Econ Theory 23, 909–923 (2004)CrossRefGoogle Scholar
  33. Myerson R.B., Satterthwaite M.A.: Efficient mechanisms for bilateral trading. J Econ Theory 29, 265–281 (1983)CrossRefGoogle Scholar
  34. Reynolds S.S., Wooders J.: Auctions with a buy price. Econ Theory 38, 9–39 (2009)CrossRefGoogle Scholar
  35. Williams S.R.: A characterization of efficient, Bayesian incentive compatible mechanisms. Econ Theory 14, 155–180 (1999)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

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

Personalised recommendations