Partnership Firms, Reputation, and Human Capital

Oxford Financial Research Center Working Paper No. 2003-FE-02

26 Pages Posted: 6 Mar 2003

See all articles by Alan D. Morrison

Alan D. Morrison

University of Oxford - Said Business School; University of Oxford - Merton College

William J. Wilhelm

University of Virginia - McIntire School of Commerce

Multiple version iconThere are 2 versions of this paper

Date Written: January 24, 2003

Abstract

In human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur. We show how partnership organisations can overcome this problem by tying human and financial capital. Partnerships are opaque so that the willingness of clients to pay depends upon reputation. Partnerships are illiquid and partners must stay with the firm until clients discover their type and update the firm's reputation. This renders unskilled agents, who will aversely affect reputation, unwilling to accept partnerships. Skilled agents therefore train the next generation so as to ensure that there is an adequate market for their own shares. We comment upon the salient differences between partnerships and joint stock firms.

Keywords: Partnership, on-the-job training, human capital, collective reputation

JEL Classification: J24, J41, L14, L22

Suggested Citation

Morrison, Alan and Wilhelm, William J., Partnership Firms, Reputation, and Human Capital (January 24, 2003). Oxford Financial Research Center Working Paper No. 2003-FE-02, Available at SSRN: https://ssrn.com/abstract=373440 or http://dx.doi.org/10.2139/ssrn.373440

Alan Morrison (Contact Author)

University of Oxford - Said Business School ( email )

Department of Finance
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University of Oxford - Merton College

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William J. Wilhelm

University of Virginia - McIntire School of Commerce ( email )

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