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Trigger Happy or Gun Shy: Dissolving Common-Value Partnerships with Texas Shootouts

60 Pages Posted: 10 Jul 2009 Last revised: 9 Sep 2011

Richard R. W. Brooks

Columbia Law School; Yale University - Law School

Claudia M. Landeo

University of Alberta - Department of Economics

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2, 2009

Abstract

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

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 2, 2009). Harvard Public Law Working Paper No. 09-41; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=1432602 or http://dx.doi.org/10.2139/ssrn.1432602

Richard Brooks

Columbia Law School

435 West 116th Street
New York, NY 10009

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

Claudia Landeo (Contact Author)

University of Alberta - Department of Economics ( email )

Henry Marshall Tory Building 7-25
Edmonton, Alberta T6G 2H4
Canada

HOME PAGE: http://sites.google.com/a/ualberta.ca/claudia-m-landeo-s-home-page/home

Kathryn Spier

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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