Profit Sharing in Partnerships: Complementarity, Productivity, and Commitment

Byung-Cheol Kim, Jin Yeub Kim and Hyunjun Cho
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Byung-Cheol Kim: University of Alabama
Jin Yeub Kim: Yonsei University
Hyunjun Cho: Yonsei University

No 2024rwp-224, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: In a partnership game, a principal and an agent negotiate over their profitsharing rule, after which each individually chooses effort, generating profits. We study the roles of complementarity in efforts, asymmetric productivity, and timing of effort choices in profit-sharing partnerships. When the agent is relatively more productive than the principal, the agent gets lower bargaining power under a stronger degree of complementarity. The surplus of the partnership is always higher in the case of sequential effort choice than in the simultaneous-choice counterpart. We provide implications for allocation of ownership in corporate governance, surplus maximization in partnerships, and optimal hiring.

Keywords: game theory; Partnership, Ownership Structure, Profit-Sharing Rule, Negotiation, Complementarity. (search for similar items in EconPapers)
JEL-codes: C72 C78 G32 L14 (search for similar items in EconPapers)
Pages: 50pages
Date: 2024-04
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
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