Profit Sharing and the Role of Professional Partnerships

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Profit Sharing and the Role of Professional Partnerships

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Jonathan Levin
Steven Tadelis

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Abstract

When it is hard to assess service quality, firms will suboptimally hire low ability workers. We show that organizing as a profit-sharing partnership can alleviate these problems. Our theory explains the relative scarcity of partnerships outside of professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting. It also sheds light on features of partnerships such as up-or-out promotion systems, the use of noncompete clauses, and recent trends in professional service industries. © 2005 MIT Press

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Publisher Info
Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 120 (2005)
Issue (Month): 1 (January)
Pages: 131-171
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Handle: RePEc:tpr:qjecon:v:120:y:2005:i:1:p:131-171

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Paper
- Steven Tadelis & Jonathan Levin, 2004. "Profit Sharing and the Role of Professional Partnerships," 2004 Meeting Papers 156, Society for Economic Dynamics.

Cited by:
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Bartling, Björn & Siemens, Ferdinand von, 2007. "Equal Sharing Rules in Partnerships," Discussion Papers in Economics 2027, University of Munich, Department of Economics. [Downloadable!]

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