Transfer Pricing under Capacity Constraints

Arieh Gavious

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This study introduces a model of a firm consisting of two interacting divisions with capacity constraints that are private information. The model takes place in a setting in which the capacity of each division is known only to the division manager. Under this setting, top management can monitor only those parameters that are documented and not the actual state of the divisions. The paper shows that under fairly realistic assumptions, a simple transfer-pricing mechanism may achieve the best outcome in the sense of truth revealing and making optimal decisions.

Original languageEnglish
Pages (from-to)57-72
Number of pages16
JournalJournal of Accounting, Auditing and Finance
Volume14
Issue number1
DOIs
StatePublished - 1 Jan 1999

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