Partnership dissolution and proprietary information

This paper looks at different rules in dissolving a common value partnership when one partner holds proprietary information. In winner’s bid auction (WBA) and loser’s bid auction (LBA), there exists unique mixed strategy equilibrium. “Payoff equivalence” is established in the sense that partners’ expected payoffs are the same under the two auction formats. The informed partner benefits from an information rent while the uninformed suffers from an “ownership’s curse”. When cake–cutting mechanism (CCM) is applied, whether pure strategy equilibrium exists or not depends on the identity of the proposer. If the informed partner is the proposer, the asset value is shared equally between the two partners in a unique mixed strategy equilibrium. The paper also examines the partners’ information acquisition incentives under the three institutions. JEL classifications: D39, D44, D52, D74, D82.