We compare the costs an benefits of partnerships relative to the corporate form
of organization. We show that organizing as a partnership can be esirable in human-capital
intensive in ustries where pro uct quality is har to observe. The theory
explains the relative scarcity of partnerships outsi e of professional service in
such as law, accounting, me icine, investment banking, architecture, a vertising,
consulting. It also explains features of partnerships such as up-or-out promotion
systems, the use of non-compete clauses, motives for profit sharing as well as recent
tren s in professional service in ustries.