When Knowledge is an Asset: Explaining the Organizational Structure of Large Law Firms

Levy Economics Institute Working Paper No. 477

38 Pages Posted: 1 Nov 2006  

James B. Rebitzer

Boston University School of Management; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Bard College - The Levy Economics Institute

Lowell J. Taylor

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Multiple version iconThere are 3 versions of this paper

Date Written: October 2006

Abstract

We study the economics of employment relationships through theoretical and empirical analyses of an unusual set of firms, large law firms. Our point of departure is the property rights approach that emphasizes the centrality of ownership's legal rights to control important, nonhuman assets of the enterprise. From this perspective, large law firms are an interesting and potentially important object of study, because the most valuable assets of these firms take the form of knowledge - particularly knowledge of the needs and interests of clients. We argue that the two most distinctive organizational features of large law firms, the use of up or out promotion contests and the practice of having winners become residual claimants in the firm, emerge naturally in this setting. In addition to explaining otherwise anomalous features of the up-or-out partnership system, this paper suggests a general framework for analyzing organizations where assets reside in the brains of employees.

Keywords: Law firms, property rights, human capital

JEL Classification: J4, L2, M5

Suggested Citation

Rebitzer, James B. and Taylor, Lowell J., When Knowledge is an Asset: Explaining the Organizational Structure of Large Law Firms (October 2006). Levy Economics Institute Working Paper No. 477. Available at SSRN: https://ssrn.com/abstract=941182 or http://dx.doi.org/10.2139/ssrn.941182

James B. Rebitzer (Contact Author)

Boston University School of Management ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617 353 4605 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504
United States

Lowell J. Taylor

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States
412-268-3278 (Phone)
412-268-7036 (Fax)

Paper statistics

Downloads
129
Rank
50,447
Abstract Views
639