Organizational Design with Portable Skills

Workers learn from the tasks they perform, and in the process, they accumulate human capital that is potentially portable. Companies that cannot commit to specific task allocations may assign employees to tasks that reduce retention costs and do not maximize productivity. Equity partnerships may achieve efficient task allocation by distributing control and profit among partners, thus improving productivity. This analysis provides a novel rationale for the widespread presence of partnerships in professional service industries, their shift toward performance-based remuneration, and the conditions under which partnerships are more efficient than corporations with frictions like wealth constraints and asymmetric information.