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An Analysis of the Formation and Behavior of Partnerships

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  • Harry Watson

    (George Washington University)

Abstract

The partnership form of business has become increasingly popular in the United States and may account for a significant portion of new business formation in the future. In spite of the growth of partnerships, there has been little formal analysis of their formation or behavior. In this article, we consider the possibility that the level of partnership formation is inefficient and find conditions under which tax-subsidy schemes yield welfare-improving changes in the level of partnership formation. We also determine the effects of income taxation on partnership activity. Finally we examine the impact of government expenditure programs on partnership behavior. We find that some of these programs, for example those that are ostensibly designed to foster new business, may actually inhibit partnership formation and increase the likelihood of partnership failure.

Suggested Citation

  • Harry Watson, 1989. "An Analysis of the Formation and Behavior of Partnerships," Public Finance Review, , vol. 17(3), pages 281-303, July.
    • Handle: RePEc:sae:pubfin:v:17:y:1989:i:3:p:281-303
    DOI: 10.1177/109114218901700303
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    References listed on IDEAS

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    1. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
    2. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    3. Roy Radner, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 43-57.
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