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Formerly Graduate
School of Industrial Administration (GSIA)
William Larimer Mellon, Founder
Schenley Park
Pittsburgh, Pennsylvania 15213-3890
United States of America |
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Pierre Jinghong Liang
Associate Professor of Accounting
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Profit Sharing and Monitoring in Partnerships
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Steve Huddart
Penn State University
Pierre Jinghong Liang
Carnegie Mellon University |
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Journal of Accounting
and Economics
Vol. 40, No. 1-3 (December 2005), pages 153-187. |
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| Downloading the paper |
| 2005-March
Draft |
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| Abstract: |
| We consider the trade-off between synergy
gains and moral hazard problems within partnerships. Two avenues are
open to reduce shirking: (1) reducing the size of the partnership; and
(2) engaging monitoring activities. A third option emerges when the first
two interact. That is, in large firms with monitoring activities, having
one partner specializes in monitoring improves the partnership welfare;
so task specialization emerges endogenously. This result is striking
because partners are ex ante identical, the gains from task specialization
cannot be attributed to any comparative advantage in either task, nor
are there gains in scale or scope. The gains from specialization arise
from an incentive reason (i.e., lessening shirking in both monitoring
and production by having only a subset of partners engage in monitoring). |
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