Equal Sharing Rules in Partnerships
AbstractPartnerships 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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Bibliographic InfoPaper 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.
Date of creation: Aug 2007
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equal sharing rule; partnerships; incentives; peer pressure; inequity aversion;
Other versions of this item:
- Björn Bartling & Ferdinand A. von Siemens, 2010. "Equal Sharing Rules in Partnerships," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 299-320, June.
- 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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