Efficient partnership dissolution under buy-sell clauses

Maria-Angeles de Frutos and Thomas Kittsteiner

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: When a partnership comes to an end, partners have to determine the terms of the dissolution. A well known way to do so is by enforcing a buy-sell clause. Under its rules one party offers a price for the partnership and the other party chooses whether to sell her share or buy her partner´s share at this price. It is well known that in a model with private valuations this dissolution rule may generate inefficient allocations. However, we show that if partners negotiate for the advantage of being chooser, then buy-sell clauses result in an ex-post efficient outcome. We argue that this endogenous selection of the proposer is consistent with how buysell clauses are drafted in practice. For an example with interdependent valuations, we further show that the buy-sell clause can perform better than an auction.

Keywords: Partnership; dissolution; Buy-sell; clause; Shootout; mechanism (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Efficient partnership dissolution under buy‐sell clauses (2008)
Working Paper: Efficient Partnership Dissolution under Buy/Sell Clauses (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we072816

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