Work

The Multi‐BMBY Mechanism: Proportionality‐Preserving and Strategyproof Ownership Restructuring in Private Companies

Year: 2025

Type: article

Abstract: ABSTRACT For privately held startups, restructuring ownership is challenging due to diverse and uncertain valuations among owners. Traditional approaches, including the BMBY mechanism for equal partnerships, fail to address the complexities of multi‐owner settings and do not elicit true valuations. We propose a novel mechanism that extends the BMBY rationale to accommodate these complex scenarios. Our mechanism ensures truthful valuation elicitation while offering several advantages: it is easy to implement, budget balanced, resistant to collusion, individually rational, and allocates shares to those who value them most. Crucially, it preserves proportionality among the remaining owners, maintaining the existing power dynamics. The mechanism allows for adaptive control of the eventual number of owners, addressing unique startup needs such as incentivizing employee ownership. This paper contributes to the field of ownership restructuring by providing a practical, theoretically grounded solution for the complex dynamics of startup recapitalization, potentially improving decision‐making processes and stakeholder relationships in these pivotal business transitions.

Source: Journal of Economics & Management Strategy

DOI: 10.1111/jems.12638

Authors: Gal Danino, Moran Koren, Omer Madmon

Institutions: Technion – Israel Institute of Technology, Ben-Gurion University of the Negev

Language: English

Topic: Game Theory and Voting Systems

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,240

Funder: Israel Science Foundation