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Reorganizing a partnership efficiently

Author

Listed:
  • Eric S. Chou

    (National Tsing Hua University)

  • Meng-Yu Liang

    (Institute of Economics, Academia Sinica)

  • Cheng-Tai Wu

    (Fu Jen Catholic University)

Abstract

We modify the partnership dissolution model pioneered by Cramton et al. (Econometrica 55:615–632, 1987) to consider the possibility that each partner has an optimal scale and hence values only a fraction of an object, called a block. To achieve efficiency, a partnership should be reorganized so that multiple blocks are allocated one-to-one to the partners who have the highest valuations. The set of initial ownership distributions under which efficient reorganization can be achieved is non-convex. A condition reveals the relationship between the possibility of efficient reorganization for any given partnership and three characteristics that it entails: the number of blocks available (K), the total number of partners (N), and the number of partners who own up to a block (S). Given that K and N are fixed, efficiency can be achieved if and only if S is sufficiently low. In addition, given that N and S are fixed, efficiency can be achieved if and only if K is sufficiently high.

Suggested Citation

  • Eric S. Chou & Meng-Yu Liang & Cheng-Tai Wu, 2022. "Reorganizing a partnership efficiently," Review of Economic Design, Springer;Society for Economic Design, vol. 26(2), pages 233-246, June.
    • Handle: RePEc:spr:reecde:v:26:y:2022:i:2:d:10.1007_s10058-021-00266-3
    DOI: 10.1007/s10058-021-00266-3
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