Dissolving a partnership (un)fairly

Summary. In an incomplete information, common values setting with risk-neutral agents, we consider mechanisms for allocating the assets of a dissolving partnership where the mechanism designer has no information about the distribution of signals of the agents. We find that the divide and choose mechanism systematically favors the chooser and hence fails on the grounds of fairness. We also examine the fairness properties of the winning and losing bid auctions and show that they systematically favor winning (resp. losing) bidder in ex post allocation of surplus. Finally, we show that a binding arbitration mechanism implements fair allocations.Received: 17 May 2002, Revised: 5 June 2003, JEL Classification Numbers: D39, D44I thank an anonymous referee for extremely helpful suggestions. I also gratefully acknowledge the support of the National Science Foundation and the Hoover Institution.