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Equal Sharing Rules in Partnerships

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Author Info

  • Björn Bartling
  • Ferdinand A. von Siemens

Abstract

Partnerships are the prevalent organizational form in many industries. Profits are most frequently shared equally among the partners. The purpose of our paper is to provide a rationale for equal sharing rules. We show that with inequity-averse partners the equal sharing rule is the unique sharing rule that maximizes the partners' incentives to exert effort. We further show that inequity aversion can enhance efficiency in partnerships of given size, but that it can also cause partnerships to be inefficiently small.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 166 (2010)
Issue (Month): 2 (June)
Pages: 299-320

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201006)166:2_299:esrip_2.0.tx_2-o

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References

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  1. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December.
  2. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  3. Dominique Demougin & Claude Fluet & Carsten Helm, 2004. "Output and Wages with Inequality Averse Agents," CIRANO Working Papers 2004s-47, CIRANO.
  4. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  5. Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2005. "The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems," IZA Discussion Papers 1851, Institute for the Study of Labor (IZA).
  6. Pedro Rey-Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, 06.
  7. Steven Tadelis & Jonathan Levin, 2004. "Profit Sharing and the Role of Professional Partnerships," 2004 Meeting Papers 156, Society for Economic Dynamics.
  8. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
  9. William S. Neilson & Jill Stowe, 2010. "Piece-Rate Contracts For Other-Regarding Workers," Economic Inquiry, Western Economic Association International, vol. 48(3), pages 575-586, 07.
  10. Farrell, Joseph & Scotchmer, Suzanne, 1988. "Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 279-97, May.
  11. Dominique Demougin & Claude Fluet, 2003. "Group vs. Individual Performance Pay When Workers Are Envious," CIRANO Working Papers 2003s-10, CIRANO.
  12. Englmaier, Florian & Achim Wambach, 2003. "Contracts and Inequity Aversion," Royal Economic Society Annual Conference 2003 74, Royal Economic Society.
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Citations

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Cited by:
  1. David Gill & Rebecca Stone, 2011. "Desert and Inequity Aversion in Teams," Economics Series Working Papers 563, University of Oxford, Department of Economics.
  2. Jan Y. Sand, 2009. "Efficiency in complementary partnerships with competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 57-70.
  3. De Marco, Giuseppe & Immordino, Giovanni, 2013. "Partnership, reciprocity and team design," Research in Economics, Elsevier, vol. 67(1), pages 39-58.
  4. Markus Brunner & Kai Sandner, 2012. "Social comparison, group composition, and incentive provision," International Journal of Game Theory, Springer, vol. 41(3), pages 565-602, August.
  5. Jianpei Li, 2009. "Team production with inequity-averse agents," Portuguese Economic Journal, Springer, vol. 8(2), pages 119-136, August.
  6. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
  7. L. Bagnoli & G. Negroni, 2013. "Egalitarianism. An evolutionary perspective," Working Papers wp888, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Haoran He & Marie Claire Villeval, 2014. "Are teams less inequality averse than individuals?," Working Papers halshs-00996545, HAL.
  9. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.
  10. Bartling, Björn & von Siemens, Ferdinand A., 2011. "Wage inequality and team production: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 1-16, February.
  11. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
  12. Dominik Erharter, 2013. "Screening Experts' Distributional Preferences," Working Papers 2013-27, Faculty of Economics and Statistics, University of Innsbruck.

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