Dissolving a Partnership Efficiently

By Peter C. CramtonRobert S. GibbonsPaul D. Klemperer
1984| Working Paper No. 744

Several partners jointly own an asset that may be traded among them. Each partner has a valuation for the asset; the valuations are known privately and drawn independently from a common probability distribution. We characterize the set of all incentive-compatible and interim-individually-rational trading mechanisms, and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership ex post efficiently. We construct a bidding game that achieves such dissolution whenever it is possible. Despite incomplete information about the valuation of the asset, a partnership can be dissolved ex post efficiently provided no single partner owns too large a share; this contrasts with Myerson and Satterthwaites result that ex post efficiency cannot be achieved when the asset is owned by a single party.