What to Put on the Table

Abstract

This paper investigates the circumstances under which negotiating simultaneously over multiple issues or assets helps reduce inefficiencies due to the presence of asymmetric information. Consider the case where one agent controls all assets. One would expect that strong substitutabilities among assets, would help trade, as the seller would value the additional units less. We show that this intuition is true only if assets are heterogeneous. If assets are homogeneous, efficiency is never possible, irrespective of the degree of substitutability or complementarity among them. When ownership is dispersed, in the sense that different assets are owned by different agents, efficiency is actually more common when assets are homogeneous. When assets are heterogeneous, efficiency can be possible only when assets are complementary. We also study cases where co-ownership is possible (partnerships), allowing for asymmetric distributions, general valuation functions and multiple assets. We show that efficient dissolution is possible if all agents' payoffs at their valuations where gains of trade are minimal are equal. For this to hold, the agent that most likely has the highest valuation for a given asset should initially own a bigger share of that asset. We discuss implications of these findings for the design of negotiation agendas, partnerships and joint ventures.

Keywords: efficient mechanism design, multiple units, complements, substitutes, ownership structure, partnerships.

JEL Classification: C72, D82, L14