Despite the clear prescription from economic theory that a firm should set price based only on variable costs, firms routinely factor fixed costs into pricing decisions. We show that full-cost pricing (FCP) can help firms uncover their optimal price from economic theory. FCP marks up variable...

Despite the clear prescription from economic theory that a firm should set price based only on variable costs, firms routinely factor fixed costs into pricing decisions. We show that full-cost pricing (FCP) can achieve the optimal price. FCP marks up variable cost with the contribution margin...

We study how biases in financial reporting affect managers' incentives to develop innovative projects and to make appropriate investment decisions. Conservative reporting practices impose stricter verification standards for recognizing good news, and reduce the chance that risky innovations will...