A Theory of Partnerships

31 Pages Posted: 27 May 2002

See all articles by Jonathan Levin

Jonathan Levin

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Steven Tadelis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: October 2002

Abstract

We compare the costs and benefits of partnerships relative to the corporate form of organization. We show that organizing as a partnership can be desirable in human-capital intensive industries where product quality is hard to observe. The theory explains the relative scarcity of partnerships outside of professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting. It also explains features of partnerships such as up-or-out promotion systems, the use of non-compete clauses, motives for profit sharing as well as recent trends in professional service industries.

Keywords: partnerships, corporations, profit sharing, imperfect monitoring

JEL Classification: D20, D82, G34, J33, L11, L22

Suggested Citation

Levin, Jonathan D. and Tadelis, Steven, A Theory of Partnerships (October 2002). Stanford Law and Economics Olin Working Paper No. 244. Available at SSRN: https://ssrn.com/abstract=311159 or http://dx.doi.org/10.2139/ssrn.311159

Jonathan D. Levin

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven Tadelis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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