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Equal Sharing Rules in Partnerships

Author

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  • 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.

Suggested Citation

  • Bartling, Björn & Siemens, Ferdinand von, 2007. "Equal Sharing Rules in Partnerships," Discussion Papers in Economics 2027, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:2027
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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

    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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