On Efficient Partnership Dissolution under Ex Post Individual Rationality

Abstract

This paper studies efficient partnership dissolution with ex post participation constraints in a setting with interdependent valuations. We derive a sufficient condition that ensures the existence of an efficient dissolution mechanism that satisfies Bayesian incentive compatibility, ex post budget balancedness, and ex post individual rationality. For equal-share partnerships, we show that our sufficient condition is satisfied for any symmetric type distribution whenever the interdependence in valuations is non-positive. This result improves former existence results, demonstrating that the stronger requirement of ex post individual rationality does not always rule out efficiency. We also discuss the possibility of efficient dissolution with asymmetries in type distributions and ownership shares, positive interdependence in valuations, and ex post quitting rights.

Keywords: mechanism design, efficient trade, ex post individual rationality, Groves mechanism, quitting right, interdependent valuation

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