Equal Sharing Rules in Partnerships

Bartling, Björn and Siemens, Ferdinand von (2007): Equal Sharing Rules in Partnerships. Discussion Papers in Economics 2007-29

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.

• Item Type: Paper (Discussion Paper)
• Keywords: equal sharing rule, partnerships, incentives, peer pressure, inequity aversion
• Collections: Economics; Economics > Discussion Papers in Economics
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: D20, D86, J54
• Language: English