59 Pages Posted: 17 Apr 2009
Date Written: March 1, 2009
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.
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
Suggested Citation: Suggested Citation
Brooks, Richard R. W. and Landeo, Claudia M. and Spier, Kathryn E., Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts (March 1, 2009). Harvard Law and Economics Discussion Paper No. 630. Available at SSRN: https://ssrn.com/abstract=1372195 or http://dx.doi.org/10.2139/ssrn.1372195