Partnership Dissolution, Complementarity, and Investment Incentives

Jianpei Li () and Elmar Wolfstetter ()

No CESifo Working Paper No. 1325, CESifo Working Paper Series from CESifo Group Munich

Abstract: We study a partnership that anticipates its possible dissolution. In our model, partnerships form in order to take advantage of complementary skills; although new opportunities may arise that make partners’ skills useless. We characterize the optimal, incentive-compatible partnership contract that can be implemented by a simple call option, and then analyze the commonly used buy–sell provision. We show that this dissolution rule gives rise to inefficiency, either in the form of excessive dissolutions combined with underinvestment or efficient dissolutions combined with overinvestment. However, supplementing the buy–sell provision with the right to veto may restore efficiency.

JEL-codes: C78 D82 J12 K12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-law
Date: Written
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cesifo-group.de/DocCIDL/cesifo1_wp1325.pdf (application/pdf)

Related works:
Working Paper: Partnership Dissolution, Complementarity, and Investment Incentives (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ces:ceswps:_1325

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Group Munich
Address: Poschingerstrasse 5, 81679 Munich
Series data maintained by Julio Saavedra ().