On the Generic Efficiency of Takeovers under Incomplete Information
Abstract This paper extends the mechanism design technique to financial assets and examines the welfare implications of popular linkages between shareholdings and control in takeovers. When all contenders for control except the incumbent have private information, plurality mechanisms are generically efficient, but simple majority rules are not, with more than two contenders. When all contenders have private information, plurality, majority and winner-take-all mechanisms are not generically efficient. In fact, generic efficiency is impossible if the winner obtains non-zero shares. The results suggest that common linkages between shares and control may be in compatible with generic efficiency under incomplete information. Journal of Economic Literature Classification Numbers: G34, C78, D82.