Dissolving a partnership dynamically

Matt Van Essen, John Wooders

    Research output: Contribution to journalArticle

    Abstract

    In financial disputes arising from divorce, inheritance, or the dissolution of a partnership, frequently the need arises to assign ownership of an indivisible item to one member of a group. This paper introduces and analyzes a dynamic auction for simply and efficiently allocating an item when participants are privately informed of their values. In the auction, the price rises continuously. A bidder who drops out of the auction, in return for surrendering his claim to the item, obtains compensation equal to the difference between the price at which he drops and the preceding drop price. When only one bidder remains, that bidder wins the item and pays the compensations of his rivals. We characterize the unique equilibrium with risk-neutral and CARA risk averse bidders. We show that dropout prices are decreasing as bidders become more risk averse. Each bidder's equilibrium payoff is at least 1/N-th of his value for the item.

    Original languageEnglish (US)
    Pages (from-to)212-241
    Number of pages30
    JournalJournal of Economic Theory
    Volume166
    DOIs
    StatePublished - Nov 1 2016

    Fingerprint

    Auctions
    Drop out
    Risk-averse
    Ownership
    Divorce
    Dissolution
    Dispute

    Keywords

    • Auction
    • Dynamic
    • Fair division
    • Partnership

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Dissolving a partnership dynamically. / Van Essen, Matt; Wooders, John.

    In: Journal of Economic Theory, Vol. 166, 01.11.2016, p. 212-241.

    Research output: Contribution to journalArticle

    Van Essen, Matt ; Wooders, John. / Dissolving a partnership dynamically. In: Journal of Economic Theory. 2016 ; Vol. 166. pp. 212-241.
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