We examine alternative performance measures for a manager who has superior information about the profitability of an investment project and who contributes to periodic operating cash flows through his efforts. We find that residual income based on a suitably chosen depreciation schedule is an...

This paper examines the theoretical properties of full cost transfer prices in multi-divisional firms. In our model, divisional managers are responsible for the initial acquisition of productive capacity and the utilization of that capacity in subsequent periods, once operational uncertainty has...