Social Choice and Welfare

, Volume 41, Issue 2, pp 321–335 | Cite as

Dissolving (in)effective partnerships

Original Paper

Abstract

This paper studies the problem of partnership dissolution in the context of asymmetric information. Past work shows that the initial share allocation, interdependence of partners’ valuations, and asymmetric control all affect the possibility of efficient dissolution. In this paper, I show, in a novel class of “cooperative” partnerships characterized by ex ante interdependence of valuations, that effectiveness is significantly more important than the initial share allocation. Intuitively, as the effectiveness of cooperation between partners (and thus partnership value) increases, the gains from dissolving decrease but the informational rents remain constant, so efficient dissolution is more difficult to achieve. For sufficiently high effectiveness, efficient dissolution is impossible for any initial share allocation. For sufficiently low effectiveness, however, efficient dissolution is possible for all initial share allocations. The possibility of efficient bargaining depends on the initial share allocation only for moderately effective partnerships.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Brooks R, Landeo C, Spier K (2010) Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts. RAND J Econ 41: 649–673CrossRefGoogle Scholar
  2. Chien H-K (2007) Incentive efficient mechanisms for partnership dissolution (manuscript)Google Scholar
  3. Cramton P, Gibbons R, Klemperer P (1987) Dissolving a partnership efficiently. Econometrica 55: 615–632CrossRefGoogle Scholar
  4. d’Aspremont C, Gérard-Varet L-A (1979) Incentives and incomplete information. J Public Econ 11: 25–45CrossRefGoogle Scholar
  5. De Frutos MA, Kittsteiner T (2008) Efficient partnership dissolution under buy/sell clauses. RAND J Econ 39: 184–199Google Scholar
  6. Engers M, McManus B (2007) Charity auctions. Int Econ Rev 48: 953–994CrossRefGoogle Scholar
  7. Englebrecht-Wiggans R (1994) Auctions with price-proportional benefits to bidders. Games Econ Behav 6: 339–346CrossRefGoogle Scholar
  8. Farrell J, Scotchmer S (1988) Partnerships. Q J Econ 103: 279–297CrossRefGoogle Scholar
  9. Fieseler K, Kittsteiner T, Moldovanu B (2003) Partnerships, lemons and efficient trade. J Econ Theory 113: 223–234CrossRefGoogle Scholar
  10. Goeree J, Maasland E, Onderstal S, Turner JL (2005) How (not) to raise money. J Political Econ 113: 897–918CrossRefGoogle Scholar
  11. Hauswald R, Hege U (2003) Ownership and control in joint ventures: theory and evidence. Discussion Paper 4056. CEPR, Washington, DCGoogle Scholar
  12. Holmström B (1982) Moral hazard in teams. Bell J Econ 13: 324–340CrossRefGoogle Scholar
  13. Jehiel P, Pauzner A (2006) Partnership dissolution with interdependent values. RAND J Econ 37: 1–22CrossRefGoogle Scholar
  14. Kittsteiner T (2003) Partnerships and double auctions with interdependent valuations. Games Econ Behav 44:54–76Google Scholar
  15. Krishna V, Perry M (2000) Efficient mechanism design (mimeo)Google Scholar
  16. Legros P, Matthews SA (1993) Efficient and nearly-efficient partnerships. Rev Econ Stud 60(3): 599–611CrossRefGoogle Scholar
  17. Lengwiler Y, Wolfstetter E (2005) On some auction rules for amicable divorce in equal shares partnerships. In: Beschorner T, Eger T (eds) Das Ethische in der konomie. Festschrift fr Hans Nutzinger, Metropolis Verlag, pp 199–212Google Scholar
  18. Levin S, Tadelis J (2005) Profit-sharing and the role of professional partnerships. Q J Econ 120: 131–171Google Scholar
  19. Li J, Wolfstetter E (2010) Partnership dissolution, complementarity, and investment incentives. Oxf Econ Pap 62: 529–552CrossRefGoogle Scholar
  20. Makowski L, Mezzetti C (1994) Bayesian and weakly robust first best mechanisms: characterizations. J Econ Theory 64: 500–519CrossRefGoogle Scholar
  21. Matouschek N (2004) Ex post inefficiencies in a property rights theory of the firm. J Law Econ Organ 20: 125–147CrossRefGoogle Scholar
  22. McAfee RP (1992) Amicable divorce. J Econ Theory 56: 266–293CrossRefGoogle Scholar
  23. Moldovanu B (2002) How to dissolve a partnership. J Inst Theor Econ 158: 66–80CrossRefGoogle Scholar
  24. Myerson RB, Satterthwaite M (1983) Efficient mechanisms for bilateral trading. J Econ Theory 29: 265–281CrossRefGoogle Scholar
  25. Ornelas E, Turner JL (2007) Efficient dissolution of partnerships and the structure of control. Games Econ Behav 60: 187–199CrossRefGoogle Scholar
  26. Segal I, Whinston M (2011) A simple status quo that assures participation (with application to efficient bargaining). Theor Econ 6: 109–125CrossRefGoogle Scholar
  27. Singh R (1998) Takeover bids with toeholds: The case of the owner’s curse. Rev Financ Stud 11: 679–704CrossRefGoogle Scholar
  28. Turner JL (2011) Dissolving (in)effective partnerships. Working paper, Sep 2011Google Scholar
  29. Williams SR (1999) A characterization of efficient, Bayesian incentive compatible mechanisms. Econ Theory 14: 155–180CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of GeorgiaAthensUSA

Personalised recommendations