Efficient partnership dissolution under buy-sell clauses

Frutos, María Ángeles de; Kittsteiner, Thomas

doi:10.1111/j.0741-6261.2008.00009.x

Cited by 19 publications

(15 citation statements)

References 12 publications

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“…McAfee (1992) and Cramton, Gibbons, and Klemperer (1987) explore alternative partnership dissolution mechanisms, such as a simultaneous sealed‐bid auction where the partner with the high bid gets the partnership asset at a price equal to a predetermined combination of the two bids 14 . In a recent theoretical work, de Frutos and Kittsteiner (2008) argue that the inefficiency of buy‐sell mechanisms (McAfee, 1992) is mitigated if the parties bid to determine the offeror. Jehiel and Pauzner (2006) and Fieseler, Kittsteines, and Moldovanu (2003) analyze the partnership dissolution problem in settings characterized by interdependent values and asymmetric information.…”

Section: Introductionmentioning

confidence: 99%

Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts

Brooks

Spier

2010

The RAND Journal of Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractMany partnership contracts (and other joint-venture agreements) include so-called "Texas Shootout Clauses" to govern future breakups. In a Texas Shootout, one partner names a single buy-sell price and the other partner has the option to buy or sell at that price. While the prior literature has considered the allocative efficiency of the Texas Shootout, this paper focuses on the incentives of private parties to make these offers to begin with. We consider a model where sole ownership is more efficient than joint ownership. Although both partners are equally capable, one has private information about the common value of the asset. When given the choice, they avoid making buy-sell offers because these offers give away bargaining surplus (the partners are "gun shy"). Instead, they often (but not always) prefer to make simple offers to buy or simple offers to sell and bargaining failures arise. Texas Shootout contracts that assign trigger rights -where one party can force the other to name a price -increase efficiency and are jointly desirable.2

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Section: Introductionmentioning

confidence: 99%

Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts

Brooks

Spier

2010

The RAND Journal of Economics

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“…Summing these two expressions gives BS(r). 19 Other simple mechanisms that dissolve a partnership efficiently under one-dimensional private information, that is, k-double auction in CGK, Moldovanu (2002), and Kittsteiner (2003), Texas shout-out mechanism in McAfee (1992) and de Frutos and Kittsteiner (2008), and winner or loser bid auctions in McAfee (1992) and Lengwiler and Wolfstetter (2005), cannot be readily extended to dissolve efficiently under the multidimensional private information in this article. be the highest bid, b i = max j =i {b j } the highest bid of the others but i, and a i = j =i a j the sum of the asks of the others but i.…”

Section: Double Auction For Partnership Dissolutionmentioning

confidence: 99%

“…Other simple mechanisms that dissolve a partnership efficiently under one‐dimensional private information, that is, k ‐double auction in CGK, Moldovanu (), and Kittsteiner (), Texas shout‐out mechanism in McAfee () and de Frutos and Kittsteiner (), and winner or loser bid auctions in McAfee () and Lengwiler and Wolfstetter (), cannot be readily extended to dissolve efficiently under the multidimensional private information in this article.…”

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confidence: 99%

Value of the Status Quo and Efficient Partnership Dissolution

Agastya

Birulin

2018

Int Economic Review

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Allowing the value of an asset to depend on the ownership structure, we study ex post efficient (EPEF) dissolution of a partnership in a multidimensional independent private value (IPV) environment. The status‐quo may now be an EPEF outcome. Under mild support restrictions, we show that no partnership can be dissolved. Moreover, when the restrictions fail, one can dissolve a highly skewed partnership but not the equal partnership. These results are in stark contrast to the literature that follows Cramton et al. (Econometrica 55 (1987), 615–32) where an even allocation of initial property rights ensures efficient dissolution.

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“…Dissolution mechanisms used in practice typically have simpler rules than the optimal direct mechanisms we characterize. For example, in the Texas shootout (or buy–sell clause), a commonly used procedure for breaking up bilateral business partnerships, one partner proposes a per‐unit price and the other partner decides whether to sell his share or buy out his partner at that price (McAfee 1992, de Frutos and Kittsteiner 2008, Brooks et al 2010). Under private information, the Texas shootout is typically inefficient, even in settings where ex post efficient dissolution would be feasible.…”

Section: Optimal Dissolution Mechanismsmentioning

confidence: 99%

Optimal structure and dissolution of partnerships

Loertscher

Wasser

2019

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For a partnership model with general type distributions and interdependent values, we derive the optimal dissolution mechanisms that, for arbitrary initial ownership, maximize any convex combination of revenue and social surplus. The solution involves ironing around typically interior worst‐off types, which are endogenously determined. The optimal ownership structures are such that, with identical distributions, equal shares are always optimal. With nonidentical distributions, the optimal shares are typically asymmetric, the identity of the agents with large shares may change with the importance of revenue generation, and even fully concentrated initial ownership and assigning zero shares to the strongest agents can be optimal.

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Efficient partnership dissolution under buy-sell clauses

Abstract: Buy

Cited by 19 publications

References 12 publications

Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts

Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts

Value of the Status Quo and Efficient Partnership Dissolution

Optimal structure and dissolution of partnerships

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