Working Paper: NBER ID: w12583
Authors: James B. Rebitzer; Lowell J. Taylor
Abstract: We study the economics of employment relationships through theoretical and empirical analysis of an unusual set of firms, large law firms. Our point of departure is the "property rights" approach that emphasizes the centrality of ownership's legal rights to control important, non-human assets of the enterprise. From this perspective, large law firms are an interesting and potentially important object of study because the most valuable assets of these firms take the form of knowledge - particularly knowledge of the needs and interests of clients. We argue that the two most distinctive organizational features of large law firms, the use of "up or out" promotion contests and the practice of having winners become residual claimants in the firm, emerge naturally in this setting. In addition to explaining otherwise anomalous features of the up-or-out partnership system, this paper suggests a general framework for analyzing organizations where assets reside in the brains of employees.
Keywords: employment relationships; large law firms; property rights; organizational structure; knowledge assets
JEL Codes: J4; L2; M5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lack of property rights (P14) | up-or-out promotion system (J62) |
| Control over knowledge assets (O36) | employment practices (M51) |
| up-or-out promotion system (J62) | mitigate risk of attorneys grabbing and leaving with clients (K41) |
| Organizational structure (L22) | solution to controlling knowledge assets (O36) |
| up-or-out promotion system (J62) | reflection of unique nature of knowledge work in law firms (L84) |