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| Author: | Gerchak, Y. Fuller, J. D. |
| Title: | Optimal value declaration in "buy-sell" situations |
| Journal: | Management Science
1992 : JAN, VOL.38:1, p.48-56 |
| Index terms: | DECISION MODELS SHARE VALUATION RISK UTILITY THEORY OPTIMIZATION |
| Language: | eng |
| Abstract: | The dissolution of partnerships is often governed by buy-sell "shotgun" (put-call) clauses included in partnership agreements. These clauses call for a partner who wishes to discontinue a partnership to declare a value for the business. The resulting decision model for an expected utility maximizing individual, who is uncertain of the business' valuation by the partner, is analyzed. After showing that the optimal declaration is always between the declarer's valuation and the fractile of the subjective distribution to the share owned, it is shown that the optimal declaration is always increasing the valuation, and for a risk-neutral declarer also increasing in the share owned. |
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