Equal Sharing Rules in Partnerships
University of Zurich - Department of Economics Library
Ferdinand Von Siemens
Goethe University Frankfurt
September 25, 2008
Journal of Institutional and Theoretical Economics, Forthcoming
Partnerships are the prevalent organizational form in many industries. Profits are most frequently shared equally among the partners. The purpose of our paper is to provide a rationale for equal sharing rules. We show that with inequity averse partners the equal sharing rule is the unique sharing rule that maximizes the agents' incentives to exert effort. We further show that inequity aversion can enhance efficiency in partnerships of given size, but that it can also cause partnerships to be inefficiently small.
Number of Pages in PDF File: 23
Keywords: equal sharing rule, partnerships, incentives, peer pressure, inequity aversion
JEL Classification: D20, D86, J54Accepted Paper Series
Date posted: September 10, 2007 ; Last revised: June 2, 2011
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