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On efficient partnership dissolution under ex post individual rationality

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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.

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Authors and Affiliations

  1. Department of Decision Mathematics, University of Florence, via Lombroso 6/17, 50134, Florence, Italy

    Stefano Galavotti

  2. Graduate School of Economics, Hitotsubashi University, Naka 2-1, Kunitachi, Tokyo, 186-8601, Japan

    Nozomu Muto & Daisuke Oyama

Authors
  1. Stefano Galavotti
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  2. Nozomu Muto
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  3. Daisuke Oyama
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Corresponding author

Correspondence to Daisuke Oyama.

Additional information

This paper subsumes and improves the results reported in two independent papers “On Efficient Trading Mechanisms with Ex-Post Individually Rational Traders” by S. Galavotti and “On Ex Post Individually Rational Partnership Dissolution” by N. Muto and D. Oyama. We would like to thank Philippe Jehiel and anonymous referees for helpful remarks and comments. We are also grateful for comments from Stergios Athanassoglou, Maria-Angeles de Frutos, Yuji Fujinaka, Laurent Lamy, Marco LiCalzi, Eiichi Miyagawa, Benny Moldovanu, and seminar/conference participants at Carlos III, CORE, Ecole Polytechnique, Hitotsubashi, PSE, Tsukuba, the 2008 QED Jamboree, the 2008 First Italian Doctoral Workshop in Economics and Policy Analysis, CTW Summer Conference 2008, SWET 2008, the 2008 Autumn Meeting of the Japanese Economic Association, the Young Economist Conference, SAET 2009, PET 2009, the 2009 Far East and South Asia and European Meetings of the Econometric Society, and the 2009 Hitotsubashi G-COE Conference on Mechanism Design. S. Galavotti acknowledges the University of Venice for financial support. N. Muto acknowledges Grant-in-Aid for JSPS Fellows. D. Oyama acknowledges financial support by JSPS Grant-in-Aid for Scientific Research (S) and from the Zengin Foundation for Studies on Economics and Finance. Part of this research was developed while D. Oyama was visiting PSE, whose hospitality is gratefully acknowledged.

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Galavotti, S., Muto, N. & Oyama, D. On efficient partnership dissolution under ex post individual rationality. Econ Theory 48, 87–123 (2011). https://doi.org/10.1007/s00199-010-0540-3

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  • DOI: https://doi.org/10.1007/s00199-010-0540-3

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