Optimal Structure and Dissolution of Partnerships
63 Pages Posted: 20 Jul 2015 Last revised: 20 Mar 2018
Date Written: October 1, 2017
For a partnership model with general type distributions and interdependent values, we derive the optimal dissolution mechanisms that, for arbitrary initial ownership, maximize any convex combination of revenue and social surplus. The solution involves ironing around typically interior worst-off types, which are endogenously determined. We also determine the optimal initial ownership structures. With identical distributions, equal initial shares are always optimal. With non-identical distributions, the optimal initial shares are typically asymmetric, the identity of the agents with large shares may change with the importance of revenue generation, and even fully concentrated initial ownership can be optimal.
Keywords: partnership dissolution, mechanism design, property rights, interdependent values, asymmetric type distributions
JEL Classification: D23, D61, D82
Suggested Citation: Suggested Citation