Partnership Dissolution with Cash-Constrained Agents

68 Pages Posted: 11 Oct 2021

Date Written: October 10, 2021

Abstract

When partnerships come to an end, partners must find a way to efficiently reallocate the commonly owned assets to those who value them the most. This requires that the aforementioned members possess enough financial resources to buy out the others’ shares. I investigate ex post efficient partnership dissolution when agents are ex post cash constrained. I derive necessary and sufficient conditions for ex post efficient partnership dissolution with Bayesian (resp. dominant strategy) incentive compatible, interim individually rational, ex post (resp. ex ante) budget balanced and ex post cash-constrained mechanisms. Ex post efficient dissolution is more likely to be feasible when agents with low (resp. large) cash resources own more (resp. less) initial ownership rights. Furthermore, I propose a simple auction to implement the optimal mechanism. Finally, I investigate second-best mechanisms when cash constraints are such that ex post efficient dissolution is not attainable.

Keywords: Mechanism design, Partnership, Ex post cash constraints, Property rights theory

JEL Classification: D02, D23, D40, D44, D82, C72

Suggested Citation

Pommey, Guillaume, Partnership Dissolution with Cash-Constrained Agents (October 10, 2021). CEIS Working Paper No. 514, Available at SSRN: https://ssrn.com/abstract=3939829 or http://dx.doi.org/10.2139/ssrn.3939829

Guillaume Pommey (Contact Author)

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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