Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts

Richard Brooks (), Claudia M. Landeo () and Kathryn Spier ()
Additional contact information
Richard Brooks: Yale Law School, Postal: P.O. Box 208215, New Haven, CT 06520, http://www.law.yale.edu/faculty/RBrooks.htm
Kathryn Spier: Harvard Law School, Postal: Hauser 302, 1563 Massachusetts Avenue, Cambridge, MA 02138, http://www.law.harvard.edu/faculty/spier/

No 2009-1, Working Papers from University of Alberta, Department of Economics

Abstract: The operating agreements of many business ventures include clauses to facilitate the exit of joint owners. In so-called Texas Shootouts, one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at that named price. Despite their prevalence in real-world contracts, Texas Shootouts are rarely triggered. In our theoretical framework, sole ownership is more efficient than joint ownership. Negotiations are frustrated, however, by the presence of asymmetric information. In equilibrium, owners eschew buy-sell offers in favor of simple offers to buy or to sell shares and bargaining failures arise. Experimental data support these findings.

Keywords: Exit Mechanisms for Joint Ownership Ventures; Texas Shootout Clauses; Buy-Sell Mechanisms; Shotgun Provisions; Russian Roulette Agreements; Put-Call Options; Cake-Cutting Rule; Bargaining with Common Values; Experiments; Ultimatum Exchange Environments with Endogenous Offer Types (search for similar items in EconPapers)
JEL-codes: C72 C90 D44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-exp
Date: 2009-01-22

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Persistent link: http://EconPapers.repec.org/RePEc:ris:albaec:2009_001

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