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Profit Sharing and the Role of Professional Partnerships

Author

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  • Steven Tadelis
  • Jonathan Levin

Abstract

We compare the costs and benefits of profit-sharing partnerships relative to the corporate form of organization. We show that organizing as a partnership can be desirable in human-capital intensive industries where product quality is hard to observe. The theory explains the relative scarcity of partnerships outside of professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting. It also sheds light on features of partnerships such as up-or-out promotion systems, the use of non-compete clauses, motives for profit sharing as well as recent trends in professional service industries

Suggested Citation

  • Steven Tadelis & Jonathan Levin, 2004. "Profit Sharing and the Role of Professional Partnerships," 2004 Meeting Papers 156, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:156
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    Keywords

    partnerships; profit sharing; incomplete information;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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