Partnership dissolution with interdependent values

Philippe Jehiel, Ady Pauzner

Research output: Contribution to journalReview articlepeer-review

Abstract

We study partnership dissolution when valuations are interdependent and only one party is informed. In contrast with the case of private values (Cramton, Gibbons, and Klemperer, 1987), in which efficient trade is feasible whenever initial shares are about equal, there exists a wide class of situations in which full efficiency cannot be reached. In these cases, (i) the subsidy required to restore the first best is minimal when the entire ownership is allocated initially to one of the parties, and (ii) ruling out external subsidies, the second-best welfare is maximized when one of the parties initially has full ownership.

Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalRAND Journal of Economics
Volume37
Issue number1
DOIs
StatePublished - 2006

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