Allocation of resources in a divisionalized firm

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5 Scopus citations


This paper addresses the problem of allocating resources in a divisionalized firm. The firm consists of n distinct divisions. Inputs have to be allocated acrrss the divisions and the profit function of each division may in general depend on the whole allocation of inputs. The manager of the firm does not know the divisional profit functions and yet would like to allocate resources in a profit-maximizing way. We construct a mechanism whose Nash equilibria generate a profit-maximizing allocation of inputs as well as a system of (endogenously determined) transfer prices. Furthermore, the mechanism uses smaller strategy spaces and intuitively more acceptable evaluation measures than those proposed previously.

Original languageEnglish
Pages (from-to)51-58
Number of pages8
JournalMathematical Social Sciences
Issue number1
StatePublished - 1 Jan 1994


  • Divisionalized firm
  • Profit maximizing allocations
  • Transfer prices

ASJC Scopus subject areas

  • Sociology and Political Science
  • General Social Sciences
  • General Psychology
  • Statistics, Probability and Uncertainty


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