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Equal Sharing Rules in Partnerships

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Author Info
Bartling, Björn
Siemens, Ferdinand von
Abstract

Partnerships are the prevalent organizational form in many industries. Most partnerships share profits equally among the partners. Following Kandel and Lazear (1992) it is often argued that ``peer pressure'' mitigates the arising free-rider problem. This line of reasoning takes the equal sharing rule as exogenously given. The purpose of our paper is to show that with inequity averse partners - a behavioral assumption akin to peer pressure - the equal sharing rule arises endogenously as an optimal solution to the incentive problem in a partnership.

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File URL: http://epub.ub.uni-muenchen.de/2027/1/TeamIncentivesMunich.pdf
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 2027.

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Date of creation: Sep 2007
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Handle: RePEc:lmu:muenec:2027

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Related research
Keywords: equal sharing rule; partnerships; incentives; peer pressure; inequity aversion;

Find related papers by JEL classification:
D20 - Microeconomics - - Production and Organizations - - - General
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December. [Downloadable!] (restricted)
  2. Steven Tadelis & Jonathan Levin, 2004. "Profit Sharing and the Role of Professional Partnerships," 2004 Meeting Papers 156, Society for Economic Dynamics.
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  3. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45. [Downloadable!] (restricted)
  4. Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2007. "The sociology of groups and the economics of incentives: Theory and evidence on compensation systems," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 187-214, February. [Downloadable!] (restricted)
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  5. Englmaier, Florian & Wambach, Achim, 2002. "Contracts and Inequity Aversion," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Pedro Rey Biel, 2004. "Inequity aversion and team incentives," Microeconomics 0407009, EconWPA. [Downloadable!]
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  7. Farrell, Joseph & Scotchmer, Suzanne, 1988. "Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 279-97, May. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  9. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August. [Downloadable!] (restricted)
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  10. Dominique Demougin & Claude Fluet & Carsten Helm, 2006. "Output and wages with inequality averse agents," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 399-413, May. [Downloadable!] (restricted)
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  11. Dominique Demougin & Claude Fluet, 2003. "Group vs. Individual Performance Pay When Workers Are Envious," Cahiers de recherche 0318, CIRPEE. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jan Y. Sand, 2009. "Efficiency in complementary partnerships with competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 57-70. [Downloadable!]
  2. Jianpei Li, 2009. "Team production with inequity-averse agents," Portuguese Economic Journal, Springer, vol. 8(2), pages 119-136, August. [Downloadable!] (restricted)
  3. Debashis Pal & Arup Bose & David Sappington, 2008. "Equal Pay for Unequal Work: Limiting Sabotage in Teams," University of Cincinnati, Economics Working Papers Series 2008-07, University of Cincinnati, Department of Economics. [Downloadable!]
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