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Profit Sharing and the Role of Professional Partnerships
Jonathan Levin Stanford University - Department of Economics; National Bureau of Economic Research (NBER) Steven Tadelis University of California, Berkeley - Haas School of Business August 2004 Stanford Institute for Economic Policy Research Paper No. 03-031 Abstract: When it is hard to assess product quality, firms will sub-optimally hire low ability workers. We show that organizing as a profit-sharing partnership can alleviate these problems. Our theory explains the historical prevalence of profit sharing in professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting, and the relative scarcity of profit sharing in other industries. It also sheds light on features of partnerships such as up-or-out promotion systems, and on recent trends in professional service industries.
Keywords: Profit Sharing, Partnerships, Organizations, Firm Structure JEL Classifications: D20, D82, J33, J44, J54, L22 Working Paper SeriesDate posted: July 02, 2004 ; Last revised: November 19, 2004Suggested CitationContact Information
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