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The Role of Cost Allocations in the Acquisition and Use of Common Resources

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  • RAMJI BALAKRISHNAN
  • DOUGLAS V. DeJONG

Abstract

. For a common resource, we suggest that the benefits of fixed cost allocations lie not in inducing optimal utilization of available capacity but in deciding how much capacity to acquire. In the presence of sequential information asymmetry between the owner and two symmetric users of the resource, we show that cost allocations form a part of the optimal incentive contract. We derive an optimal cost allocation scheme and provide an explicit link between the allocated costs under this scheme and the fixed costs of the resource. Résumé. Selon les auteurs, pour une ressource commune, les avantages de la répartition des coûts fixes résident non pas dans l'induction d'une utilisation optimale de la capacité disponible, mais dans la décision relative à la capacité devant être acquise. En présence d'asymétrie de l'information séquentielle entre le propriétaire et deux utilisateurs symétriques de la ressource, les auteurs démontrent que la répartition des coûts est un élément qui entre dans le contrat d'intéressement optimal. Ils dérivent un plan optimal de répartition des coûts et établissent un lien explicite entre les coûts répartis au moyen de ce plan et les coûts fixes de la ressource.

Suggested Citation

  • RAMJI BALAKRISHNAN & DOUGLAS V. DeJONG, 1993. "The Role of Cost Allocations in the Acquisition and Use of Common Resources," Contemporary Accounting Research, John Wiley & Sons, vol. 9(2), pages 395-414, March.
  • Handle: RePEc:wly:coacre:v:9:y:1993:i:2:p:395-414
    DOI: 10.1111/j.1911-3846.1993.tb00888.x
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    References listed on IDEAS

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    1. M. Gietzmann & A. Ostaszewski, 1996. "Optimal Disbursement of a Sunk Resource and Decentralised Cost Allocation," Accounting and Business Research, Taylor & Francis Journals, vol. 27(1), pages 17-40.

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