Partnership dissolution and proprietary information

This article analyzes simple rules for dissolving a common value partnership in which one partner holds proprietary information. The winner’s bid auction and the loser’s bid auction are payoff equivalent and both favor the informed partner. If it is verifiable which partner is informed, the cake-cutting mechanism (CCM) generates a “fair” allocation by making the informed partner the proposer. If that information is not verifiable and the identity of the proposer is determined through a lottery, the CCM favors the informed partner, too. Moreover, CCM is fairer than the auctions for common distributions of the asset value. Copyright Springer-Verlag 2013