Econometrica: May 1987, Volume 55, Issue 3

Dissolving a Partnership Efficiently

https://doi.org/0012-9682(198705)55:3<615:DAPE>2.0.CO;2-3
p. 615-632

Paul Klemperer, Peter Cramton, Robert Gibbons

Several partners jointly own an asset that may be traded among them. Each partner has a valuation for the asset; the valuations are known privately and drawn independently from a common probability distribution. We characterize the set of all incentive-compatible and interim-individually-rational trading mechanisms, and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership ex post efficiently. A bidding game is constructed that achieves such dissolution whenever it is possible. Despite incomplete information about the valuation of the asset, a partnership can be dissolved ex post efficiently provided no single partner owns too large a share; this contrasts with Myerson and Satterthwaite's result that ex post efficiency cannot be achieved when the asset is owned by a single party.

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