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Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts

Author

Listed:
  • Brooks, Richard

    (Yale Law School)

  • Landeo, Claudia

    (University of Alberta, Department of Economics)

  • Spier, Kathryn

    (Harvard Law School)

Abstract

The operating agreements of many business ventures include clauses to facilitate the exit of joint owners. In so-called Texas Shootouts, one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at that named price. Despite their prevalence in real-world contracts, Texas Shootouts are rarely triggered. In our theoretical framework, sole ownership is more efficient than joint ownership. Negotiations are frustrated, however, by the presence of asymmetric information. In equilibrium, owners eschew buy-sell offers in favor of simple offers to buy or to sell shares and bargaining failures arise. Experimental data support these findings.

Suggested Citation

  • Brooks, Richard & Landeo, Claudia & Spier, Kathryn, 2009. "Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts," Working Papers 2009-1, University of Alberta, Department of Economics, revised 01 Jul 2013.
    • Handle: RePEc:ris:albaec:2009_001
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    More about this item

    Keywords

    Exit Mechanisms for Joint Ownership Ventures; Texas Shootout Clauses; Buy-Sell Mechanisms; Shotgun Provisions; Russian Roulette Agreements; Put-Call Options; Cake-Cutting Rule; Bargaining with Common Values; Experiments; Ultimatum Exchange Environments with Endogenous Offer Types;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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