IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v58y2012i7p1341-1356.html
   My bibliography  Save this article

Efficient Cost Allocation

Author

Listed:
  • Korok Ray

    (George Washington School of Business, Washington, DC 20052)

  • Maris Goldmanis

    (Department of Economics, Royal Holloway, University of London, London, United Kingdom)

Abstract

Firms routinely allocate the costs of common corporate resources down to divisions. The main insight of this paper is that any efficient allocation rule must reflect the firm's underlying cost structure. We propose a new allocation rule (the polynomial rule), which achieves efficiency and approximate budget balance. Welfare losses due to linear allocation rules increase with firm size, so polynomial allocation rules dominate linear rules for larger firms. This paper was accepted by Mary E. Barth, accounting.

Suggested Citation

  • Korok Ray & Maris Goldmanis, 2012. "Efficient Cost Allocation," Management Science, INFORMS, vol. 58(7), pages 1341-1356, July.
    • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:7:p:1341-1356
    DOI: 10.1287/mnsc.1110.1486
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1110.1486
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1110.1486?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 2, pages 49-96, World Scientific Publishing Co. Pte. Ltd..
    2. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-1037, September.
    3. Anil Arya & Joel Demski & Jonathan Glover & Pierre Liang, 2009. "Quasi-Robust Multiagent Contracts," Management Science, INFORMS, vol. 55(5), pages 752-762, May.
    4. Mark A. Satterthwaite & Steven R. Williams, 2002. "The Optimality of a Simple Market Mechanism," Econometrica, Econometric Society, vol. 70(5), pages 1841-1863, September.
    5. Suh, Ys, 1987. "Collusion And Noncontrollable Cost Allocation," Journal of Accounting Research, Wiley Blackwell, vol. 25, pages 22-50.
    6. William P. Rogerson, 2003. "Simple Menus of Contracts in Cost-Based Procurement and Regulation," American Economic Review, American Economic Association, vol. 93(3), pages 919-926, June.
    7. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
    8. Baiman, S & Noel, J, 1985. "Noncontrollable Costs And Responsibility Accounting," Journal of Accounting Research, Wiley Blackwell, vol. 23(2), pages 486-501.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Yenming J. & Chen, Tsung-Hui, 2019. "Fair sharing and eco-efficiency in green responsibility and green marketing policy," International Journal of Production Economics, Elsevier, vol. 217(C), pages 232-245.
    2. Jacob P. Gramlich & Korok Ray, 2015. "Reconciling Full-Cost and Marginal-Cost Pricing," Finance and Economics Discussion Series 2015-72, Board of Governors of the Federal Reserve System (U.S.).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Loertscher, Simon & Mezzetti, Claudio, 2021. "A dominant strategy, double clock auction with estimation-based tatonnement," Theoretical Economics, Econometric Society, vol. 16(3), July.
    2. , & , A., 2007. "Efficiency in repeated trade with hidden valuations," Theoretical Economics, Econometric Society, vol. 2(3), September.
    3. , & , & ,, 2007. "Secure implementation," Theoretical Economics, Econometric Society, vol. 2(3), September.
    4. Martin Hellwig & Felix Bierbrauer, 2009. "Public Good Provision in a Large Economy," 2009 Meeting Papers 1062, Society for Economic Dynamics.
    5. Robert Kleinberg & Bo Waggoner & E. Glen Weyl, 2016. "Descending Price Optimally Coordinates Search," Papers 1603.07682, arXiv.org, revised Dec 2016.
    6. Dütting, Paul & Talgam-Cohen, Inbal & Roughgarden, Tim, 2017. "Modularity and greed in double auctions," LSE Research Online Documents on Economics 83199, London School of Economics and Political Science, LSE Library.
    7. Youngsub Chun & Manipushpak Mitra & Suresh Mutuswami, 2017. "Reordering an existing queue," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 49(1), pages 65-87, June.
    8. Satterthwaite, Mark A. & Williams, Steven R. & Zachariadis, Konstantinos E., 2014. "Optimality versus practicality in market design: A comparison of two double auctions," Games and Economic Behavior, Elsevier, vol. 86(C), pages 248-263.
    9. Felix Bierbrauer, 2006. "Distortionary Taxation and the Free-Rider Problem," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_6, Max Planck Institute for Research on Collective Goods.
    10. Marek Pycia & Peter Troyan, 2023. "A Theory of Simplicity in Games and Mechanism Design," Econometrica, Econometric Society, vol. 91(4), pages 1495-1526, July.
    11. Corchón, Luis C., 2008. "The theory of implementation : what did we learn?," UC3M Working papers. Economics we081207, Universidad Carlos III de Madrid. Departamento de Economía.
    12. Sylvain Chassang, 2013. "Calibrated Incentive Contracts," Econometrica, Econometric Society, vol. 81(5), pages 1935-1971, September.
    13. Yoon, Kiho, 2008. "The participatory Vickrey-Clarke-Groves mechanism," Journal of Mathematical Economics, Elsevier, vol. 44(3-4), pages 324-336, February.
    14. Athanasiou, E. & Dey, S. & Valletta, G., 2012. "On sharing the benefits of communication," Research Memorandum 016, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    15. M. Yenmez, 2015. "Incentive compatible market design with applications," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(3), pages 543-569, August.
    16. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    17. Steven J. Brams & Todd R. Kaplan & D. Marc Kilgour, 2015. "A Simple Bargaining Mechanism that Elicits Truthful Reservation Prices," Group Decision and Negotiation, Springer, vol. 24(3), pages 401-413, May.
    18. Tatsuyoshi Saijo & Tomas Sjostrom & Takehiko Yamato, 2003. "Secure Implementation:Strategy-Proof Mechanisms Reconsidered," Discussion papers 03019, Research Institute of Economy, Trade and Industry (RIETI).
    19. Jackson, M.O.Matthew O. & Nicolo, Antonio, 2004. "The strategy-proof provision of public goods under congestion and crowding preferences," Journal of Economic Theory, Elsevier, vol. 115(2), pages 278-308, April.
    20. Felix Bierbrauer, 2008. "Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_31, Max Planck Institute for Research on Collective Goods.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:58:y:2012:i:7:p:1341-1356. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.