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Equal Sharing Rules in Partnerships

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  • Bartling, Björn
  • Siemens, Ferdinand von
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    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/13335/1/217.pdf
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    Bibliographic Info

    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 217.

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    Date of creation: Aug 2007
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    Handle: RePEc:trf:wpaper:217

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    Related research

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

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    Cited by:
    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.
    2. Jianpei Li, 2009. "Team production with inequity-averse agents," Portuguese Economic Journal, Springer, vol. 8(2), pages 119-136, August.

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