Dissolving a Partnership Efficiently

Abstract

Several partners jointly own an asset that may be traded among them.Each partner has a valuation for the asset; the valuations arc 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.A bidding game is constructed that achieves such dissolution whenever it is possible.Despite incomplete in- formation 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 Satterth- waite's result that ex post efficiency cannot be achieved when the asset is owned by a singlf party.