IDEAS home Printed from https://ideas.repec.org/p/trf/wpaper/217.html
   My bibliography  Save this paper

Equal Sharing Rules in Partnerships

Author

Listed:
  • 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 Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 217, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:217
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/13335/1/217.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pedro Rey-Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    2. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
    3. Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2007. "The sociology of groups and the economics of incentives: Theory and evidence on compensation systems," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 187-214, February.
    4. Arup Bose & Debashis Pal & David E. M. Sappington, 2010. "Equal Pay for Unequal Work: Limiting Sabotage in Teams," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 25-53, March.
    5. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 131-171.
    6. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-571, September.
    7. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    8. Joseph Farrell & Suzanne Scotchmer, 1988. "Partnerships," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 279-297.
    9. Dominique Demougin & Claude Fluet, 2003. "Group vs. Individual Performance Pay When Workers Are Envious," CIRANO Working Papers 2003s-10, CIRANO.
    10. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December.
    11. William S. Neilson & Jill Stowe, 2010. "Piece-Rate Contracts For Other-Regarding Workers," Economic Inquiry, Western Economic Association International, vol. 48(3), pages 575-586, July.
    12. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
    13. Florian Englmaier & Achim Wambach, 2002. "Contracts and Inequity Aversion," CESifo Working Paper Series 809, CESifo Group Munich.
    14. Dominique Demougin & Claude Fluet & Carsten Helm, 2006. "Output and wages with inequality averse agents," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 399-413, May.
    15. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Felix Kölle & Dirk Sliwka & Nannan Zhou, 2016. "Heterogeneity, inequity aversion, and group performance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(2), pages 263-286, February.
    2. Haoran He & Marie Claire Villeval, 2014. "Are teams less inequality averse than individuals?," Post-Print halshs-01077253, HAL.
    3. Bartling, Björn & von Siemens, Ferdinand A., 2011. "Wage inequality and team production: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 1-16, February.
    4. Semih Tumen, 2016. "A theory of intra-firm group design," Journal of Productivity Analysis, Springer, vol. 45(1), pages 89-102, February.
    5. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
    6. Koji Abe & Hajime Kobayashi & Hideo Suehiro, 2014. "Leadership in the Prisoner's Dilemma with Inequity-Averse Preferences," Discussion Papers 2014-09, Kobe University, Graduate School of Business Administration.
    7. Markus Brunner & Kai Sandner, 2012. "Social comparison, group composition, and incentive provision," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(3), pages 565-602, August.
    8. De Marco, Giuseppe & Immordino, Giovanni, 2013. "Partnership, reciprocity and team design," Research in Economics, Elsevier, vol. 67(1), pages 39-58.
    9. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
    10. Gill, David & Stone, Rebecca, 2015. "Desert and inequity aversion in teams," Journal of Public Economics, Elsevier, pages 42-54.
    11. repec:eee:jeborg:v:144:y:2017:i:c:p:121-132 is not listed on IDEAS
    12. Jan Y. Sand, 2009. "Efficiency in complementary partnerships with competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 57-70.
    13. Jianpei Li, 2009. "Team production with inequity-averse agents," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 8(2), pages 119-136, August.
    14. Michael T. Rauh, 2014. "Incentives, wages, employment, and the division of labor in teams," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 533-552, September.
    15. repec:eee:joepsy:v:62:y:2017:i:c:p:173-185 is not listed on IDEAS
    16. He, Haoran & Villeval, Marie Claire, 2017. "Are group members less inequality averse than individual decision makers?," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 111-124.
    17. Drouvelis, Michalis & Nosenzo, Daniele & Sefton, Martin, 2017. "Team incentives and leadership," Journal of Economic Psychology, Elsevier, vol. 62(C), pages 173-185.
    18. Dominik Erharter, 2013. "Screening Experts' Distributional Preferences," Working Papers 2013-27, Faculty of Economics and Statistics, University of Innsbruck.
    19. Cato, Susumu & Ebina, Takeshi, 2014. "Inequality aversion in long-term contracts," MPRA Paper 59893, University Library of Munich, Germany.
    20. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.
    21. Haoran He & Marie Claire Villeval, 2014. "Are team members less inequality averse than individual decision makers?," Working Papers halshs-00996545, HAL.
    22. Kurschilgen, Michael & Morell, Alexander & Weisel, Ori, 2017. "Internal conflict, market uniformity, and transparency in price competition between teams," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168057, Verein für Socialpolitik / German Economic Association.
    23. Michael Kurschilgen & Alexander Morell & Ori Weisel, 2016. "Internal conflict, market uniformity, and transparency in price competition between teams," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_18, Max Planck Institute for Research on Collective Goods.
    24. L. Bagnoli & G. Negroni, 2013. "Egalitarianism. An evolutionary perspective," Working Papers wp888, Dipartimento Scienze Economiche, Universita' di Bologna.
    25. repec:spr:jogath:v:46:y:2017:i:2:d:10.1007_s00182-016-0538-6 is not listed on IDEAS

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:217. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.