Equality, Evolution and Partnership Law

51 Pages Posted: 8 Mar 2001

See all articles by Thomas A. Smith

Thomas A. Smith

University of San Diego School of Law

Date Written: March 2001

Abstract

In this article, I suggest some new explanations for the ancient rule of equal sharing in partnership law. The equal sharing rule is rooted in the structure of basic bargaining problems. Studying the structure of basic bargaining problems reveals that the equal sharing rule is efficient, in the straightforward sense that the selection of this rule by a legal system will minimize transactions costs under certain weak and plausible assumptions. To make this case requires a brief excursion into the game theory of the division of resources. Using game theory and some simple statistical logic, we can see how an equal sharing default rule might emerge spontaneously even in a world like our own, in which potential partners have different magnitudes of bargaining power, risk aversion, and other traits that influence how bargainers determine shares. This model constitutes the first part of this Article.

The second part of the article explores another possible path to the equal sharing rule in partnership law. Game theorists typically assume that individuals are simply trying to maximize their payoffs in any given game. The difficulties encountered in finding unique equilibrium solutions to bargaining problems with players such as these, however, has led some game theorists to develop evolutionary game theory. The work of evolutionary game theorists suggests another possible path to the equal sharing rule. Individuals might prefer egalitarian arrangements in their simple business associations. This might be so because they have a psychological disposition, programmed by biology or instilled by culture, or both, to do so. The equal sharing rule would be efficient because prospective partners disposed toward egalitarian arrangements would bargain around an inegalitarian default rule more often than they would around an equal sharing rule. This claim is strictly analogous to the familiar observation that risk averse individuals would more often bargain around a rule designed for risk neutral persons, than they would around a rule that took the non-controversial prevalence of risk aversion into account.

Evolutionary game theory provides a stronger theoretical foundation, and evolutionary biology, anthropology, and psychology, more suggestive empirical evidence, for new ways to look at business law problems, than one might initially suppose. I explore some of these themes in the third part of the article. Evolutionary anthropologists, psychologists and others have studied human sharing practices, and while the science on this topic is in its infancy, there is much genuinely interesting work that suggests humans may have an evolved predisposition to prefer egalitarian arrangements in certain settings. It is plausible to speculate that these evolved psychological dispositions underlie the ancient rule of equal sharing in partnership law, and inform other important aspects of business law as well.

Suggested Citation

Smith, Thomas A., Equality, Evolution and Partnership Law (March 2001). U San Diego Law & Econ Research Paper No. 11; U San Diego Public Law Research Paper No. 20. Available at SSRN: https://ssrn.com/abstract=262407 or http://dx.doi.org/10.2139/ssrn.262407

Thomas A. Smith (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619-260 2318 (Phone)
619-260 2219 (Fax)

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