Bartling, Björn; Siemens, Ferdinand von (September 2007): Equal Sharing Rules in Partnerships. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2007-29




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.