Reorganizing a partnership efficiently

• Published in: Review of economic design 2022-06, Vol.26 (2), p.233-246
• Main Authors: Chou, Eric S., Liang, Meng-Yu, Wu, Cheng-Tai
• Format: Article
• Language: English
• Subjects: Behavioral/Experimental Economics; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Efficiency; Game Theory; Microeconomics; Original Paper; Social and Behav. Sciences
• ISSN: 1434-4742; 1434-4750
• DOI: 10.1007/s10058-021-00266-3

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.