Profit sharing and monitoring in partnerships

Steven Huddart, Pierre Jinghong Liang

Research output: Contribution to journalArticlepeer-review

56 Scopus citations


We consider partnerships among risk-averse professionals endowed with (i) a risky and personally-costly production technology and (ii) a personally-costly monitoring technology providing contractible noisy signals about partners' productive efforts. Partners shirk both production and monitoring tasks because efforts are unobservable. We characterize optimal partnership size, profit shares and incentive payments when every partner performs the same tasks, and show that medium-sized partnerships are dominated by either smaller or larger partnerships. Prohibiting some partners from monitoring increases the incentives for others to monitor. We illustrate how task assignments and incentives interact, leading to improvements in partner welfare.

Original languageEnglish (US)
Pages (from-to)153-187
Number of pages35
JournalJournal of Accounting and Economics
Issue number1-3
StatePublished - Dec 2005

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Profit sharing and monitoring in partnerships'. Together they form a unique fingerprint.

Cite this