Profit Sharing and the Role of Professional Partnerships

Quarterly Journal of Economics 120, no. 1 (2005): 131-172
Profit Sharing and the Role of Professional Partnerships
Steve Tadelis, Jonathan Levin

When it is hard to assess product quality, firms will sub-optimally hire low ability workers. We show that organizing as a profit-sharing partnership can alleviate these problems.

Our theory explains the historical prevalence of profit sharing in professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting, and the relative scarcity of profit sharing in other industries.

It also sheds light on features of partnerships such as up-or-out promotion systems, and on recent trends in professional service industries.( JEL codes: D20, D82, J33, J44, J54, L22.

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Canary in the e-Commerce Coal Mine: Detecting and Predicting Poor Experiences Using Buyer-to-Seller Messages

Dimitriy Masterov, Uwe Mayer, Steve Tadelis

Reputation and feedback systems in online marketplaces are often biased, making it difficult to ascertain the quality of sellers. We use post-transaction, buyer-to-seller message traffic to detect signals of unsatisfactory transactions on eBay. We posit that a message sent after the item was paid for serves as a reliable indicator that the buyer may be unhappy with that purchase, particularly when the message included words associated with a negative experience. The fraction of a seller's message traffic that was negative predicts whether a buyer who transacts with this seller will stop purchasing on eBay, implying that platforms can use these messages as an additional signal of seller quality.