Faculty of Economics and Business Administration Publications Database

Equal Sharing Rules in Partnerships

Bartling, Björn
Volume: 166
Number: 2
Pages: 299 - 320
Month: June
ISSN-Print: 0932-4569
Link External Source: Online Version
Year: 2010
Abstract: Partnerships are the prevalent organizational form in many industries. Profits are most frequently shared equally among the partners. The purpose of our paper is to provide a rationale for equal sharing rules. We show that with inequity-averse partners the equal sharing rule is the unique sharing rule that maximizes the partners'' incentives to exert effort. We further show that inequity aversion can enhance efficiency in partnerships of given size, but that it can also cause partnerships to be inefficiently small.