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Partnership Dissolution with Cash-Constrained Agents

Guillaume Pommey ()
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Guillaume Pommey: Università di Roma "Tor Vergata", http://www.ceistorvergata.it

No 514, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: When partnerships come to an end, partners must find a way to efficiently reallocate the commonly owned assets to those who value them the most. This requires that the aforementioned members possess enough financial resources to buy out the others’ shares. I investigate ex post efficient partnership dissolution when agents are ex post cash constrained. I derive necessary and sufficient conditions for ex post efficient partnership dissolution with Bayesian (resp. dominant strategy) incentive compatible, interim individually rational, ex post (resp. ex ante) budget balanced and ex post cash-constrained mechanisms. Ex post efficient dissolution is more likely to be feasible when agents with low (resp. large) cash resources own more (resp. less) initial ownership rights. Furthermore, I propose a simple auction to implement the optimal mechanism. Finally, I investigate second-best mechanisms when cash constraints are such that ex post efficient dissolution is not attainable.

Keywords: Mechanism design; Partnership; Ex post cash constraints; Property rights theory. (search for similar items in EconPapers)
Pages: 68 pages
Date: 2021-10-10, Revised 2021-10-10
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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