Partnership Dissolution and Proprietary Information

Li, Jianpei (2009): Partnership Dissolution and Proprietary Information.

Abstract

This paper studies different rules in dissolving a common value partnership where one partner holds proprietary information. In winner's bid auction (WBA) and loser's bid auction (LBA), there exists a unique mixed strategy equilibrium. ``Payoff equivalence'' is established in the sense that partners' expected payoffs are the same under the two auction formats. The informed partner benefits from an information rent while the uninformed suffers from an ``ownership's curse''. When cake-cutting mechanism (CCM) is applied, whether pure strategy equilibrium exists or not depends on the identity of the proposer. If the uninformed partner is the proposer, the informed partner receives an information rent in a pure strategy equilibrium. If the informed partner is the proposer, the asset value is shared equally between the two parties in a mixed strategy equilibrium. The paper then compares the information rents and prices offered for proprietary information by the three rules.

• Item Type: MPRA Paper
• Language: English
• Keywords: partnership dissolution; proprietary information; winner's bid auction; loser's bid auction; cake-cutting mechanism
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design

References

Cramton, P., R. Gibbons, and P. Klemperer(1987): Dissolving a Partnership Efficiently, Econometrica, 55, 615-32