Paying the Partners
36 Pages Posted: 20 Sep 2007
Date Written: April 5, 2007
When three or more individuals with disparate talents form a business partnership, they may find it difficult to agree on how their profits will be divided. This paper explores a rule for dividing the profits that depends only on the partners' estimates of the relative contributions of other partners. No partner can affect his own share by the input that he provides. If there is a division that is consistent with the relative contributions suggested by all partners, then the division rule assigns these shares. We provide the intuition for the division rule and investigate several of its properties.
Keywords: Fair division, aggregating opinions, Dirichlet distribution
JEL Classification: D33, D72
Suggested Citation: Suggested Citation