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Optimal transfer pricing under postcontract information

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  • RAJIV D. BANKER
  • SRIKANT M. DATAR

Abstract

. This paper analyzes a formal principal†agents model of resource allocation and coordination in which demand for transfer pricing arises endogenously within a decentralized environment characterized by asymmetric information and divergence of preferences. It is shown that a modified Groves scheme achieves full information efficiency in a setting of the type considered by Harris, Kriebel, and Raviv (1982) and Cohen and Loeb (1984) only if the information asymmetry is postcontract and collusion is precluded. Conditions for the optimality of a coordination mechanism that is immune to collusion are also examined. It is shown that demand for a collusion†free marginal cost†type transfer pricing scheme arises if the agents are risk neutral, the cost function is separable but not necessarily linear, and the information asymmetry is postcontract. Résumé. Les auteurs analysent un modèle structuré d'affectation des ressources et de coordination mandant†mandataire, dans lequel la demande de prix de cession interne est issue, de façon endogène, d'un contexte décentralisé caractérisé par une information asymétrique et une divergence des préférences. Les auteurs démontrent qu'un schéma Groves modifié permet d'atteindre l'efficacité maximum de l'information dans un contexte semblable à celui qu'utilisent Harris, Kriebel et Raviv (1982) et Cohen et Loeb (1984), uniquement si l'asymétrie de l'information est postérieure au contrat et si la collusion est rendue impossible. Ils examinent également les conditions d'optimalité d'un mécanisme de coordination qui est à l'abri de la collusion. Les auteurs démontrent qu'il y a demande de prix de cession interne, à l'abri de la collusion, du type coût marginal si les mandataires sont neutres à l'egard du risque, si la fonction de coûts peut être isolée sans être nécessairement linéaire, et si l'asymétrie de l'information est postérieure au contrat.

Suggested Citation

  • Rajiv D. Banker & Srikant M. Datar, 1992. "Optimal transfer pricing under postcontract information," Contemporary Accounting Research, John Wiley & Sons, vol. 8(2), pages 329-352, March.
  • Handle: RePEc:wly:coacre:v:8:y:1992:i:2:p:329-352
    DOI: 10.1111/j.1911-3846.1992.tb00848.x
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    References listed on IDEAS

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    Cited by:

    1. Markus C. Arnold & Eva Ponick, 2006. "Kommunikation im Groves-Mechanismus — Ergebnisse eines Laborexperiments," Schmalenbach Journal of Business Research, Springer, vol. 58(1), pages 89-120, February.
    2. Yasin Ceran & Milind Dawande & Dengpan Liu & Vijay Mookerjee, 2014. "Optimal Software Reuse in Incremental Software Development: A Transfer Pricing Approach," Management Science, INFORMS, vol. 60(3), pages 541-559, March.
    3. V. G. Narayanan & Michael Smith, 2000. "Impact of Competition and Taxes on Responsibility Center Organization and Transfer Prices," Contemporary Accounting Research, John Wiley & Sons, vol. 17(3), pages 497-529, September.
    4. Chow, Chee W. & Hwang, Richard Nen-Chen & Liao, Woody & Wu, Anne, 1998. "National culture and subordinates' upward communication of private information," The International Journal of Accounting, Elsevier, vol. 33(3), pages 293-311.
    5. Clemens Löffler & Thomas Pfeiffer & Ulf Schiller & Joachim Wagner, 2011. "Zentralisierung, Transferpreise und spezifische Investitionen: Ein selektiver Verfahrensvergleich," Schmalenbach Journal of Business Research, Springer, vol. 63(63), pages 1-33, January.
    6. Jörg Budde & Robert F. Göx & Alfred Luhmer, 1998. "Absprachen beim Groves-Mechanismus," Schmalenbach Journal of Business Research, Springer, vol. 50(1), pages 3-20, January.
    7. Thomas Pfeiffer & Joachim Wagner, 2007. "Die Rekonstruktion interner Märkte, das Dilemma der pretialen Lenkung und spezifi sche Investitionsprobleme," Schmalenbach Journal of Business Research, Springer, vol. 59(8), pages 958-981, December.
    8. Feldmann, Martin & Müller, Stephanie, 2003. "An incentive scheme for true information providing in Supply Chains," Omega, Elsevier, vol. 31(2), pages 63-73, April.
    9. Alexis H. Kunz & Thomas Pfeiffer, 1999. "Investitionsbudgetierung und implizite Verträge: Wie resistent ist der Groves-Mechanismus bei dynamischer Interaktion?," Schmalenbach Journal of Business Research, Springer, vol. 51(3), pages 203-223, March.
    10. Christian Lohmann & Sandro Lombardo, 2014. "Resource allocation within a budgeting game: truthful reporting as the dominant strategy under collusion," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 25(1), pages 33-54, September.

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