Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts
Richard R. W. Brooks
Yale University - Law School
Claudia M. Landeo
University of Alberta - Department of Economics; University of Alberta - Institute for Public Economics
Kathryn E. Spier
Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)
March 1, 2009
Harvard Law and Economics Discussion Paper No. 630
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.
Number of Pages in PDF File: 59
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
JEL Classification: D44, C72, C90
Date posted: April 17, 2009
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