Discussion Paper of the Institute for Organisational Economics 6/2021

Die Up-or-out-Regel
Alexander Dilger
June 2021



The Up-or-out Rule

The up-or-out rule states that assistants in partnerships (or universities) must become partners after a certain period of time or have to leave the partnership. Permanent assistantship is not possible. This raises the question of why someone is not being allowed to remain an assistant if he generates more in this position than he costs, even if his productivity is insufficient to promote him to a partner. Different economic explanations to answer this question are examined. After rejecting the widespread but implausible approach that the partnership has to dismiss assistants in their own interest in order to bind themselves to their implicit promotion promise, the answer is that in partnerships the situation in question does not occur at all and the application of the up-or-down out rule is therefore to be assessed as efficient.