Minimizing Regret When Dissolving a Partnership
25 Pages Posted: 2 Jan 2009 Last revised: 30 Jan 2009
Date Written: November 1, 2008
We study the problem of dissolving an equal-entitlement partnership when the objective is to minimize maximum regret. We initially focus on the family of linear-pricing mechanisms and derive regret-optimizing strategies. We also demonstrate that there exist linear-pricing mechanisms satisfying ex-post efficiency. Next, we analyze a binary-search mechanism which is ex-post individually rational. We discuss connections with the standard Bayesian-Nash framework for both linear and binary-search mechanisms. On a more general level, we show that if entitlements are unequal, ex-post efficiency and ex-post individual rationality impose significant restrictions on permissible mechanisms. In particular, they rule out both linear and binary-search mechanisms.
Keywords: Partnership dissolution, fair division, minimax regret, ex-post efficiency, ex-post rationality, Bayesian-Nash equilibrium
JEL Classification: C72, C78, D61, L14
Suggested Citation: Suggested Citation