Efficient Dissolution of Partnerships and the Structure of Control

Abstract

Past work has shown that asymmetric information and asymmetric ownership affect the possibility of efficient dissolution of partnerships. We show that \textit{control} is also a central determinant of the possibility of efficient implementation. We demonstrate this point by analyzing a benchmark case of asymmetric control, where a single partner exercises complete control under the status quo partnership. We show that two-person partnerships cannot be dissolved efficiently with any incentive compatible, individually rational mechanism, regardless of the ownership structure, but that this impossibility result can be reversed if the number of partners is sufficiently large. Among other results, we show also that equal-shares partnerships are not generally the easiest to dissolve.

Keywords: Mechanism design, efficient trading, asymmetric control, partnerships

JEL Classification: C72, D82, L14