This chapter reviews the recent economic literature on transfer pricing. As a starting point, we take Hirshleifer's transfer pricing model and discuss the basic structure of the most widely used model extensions. We review transfer pricing models with asymmetric information, transfer pricing...

Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules which limit the scope of transfer-price...

This paper empirically examines how changes in the hierarchical structure of a large organization can affect incentives. The empirical analysis exploits a change in the hierarchical structure of the Corporate Division of a private foreign commercial bank in Argentina between 1999 and 2001. Using...

In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the...

This paper analyzes the use of transfer pricing as a strategic device in divisionalized firms facing duopolistic price competition. When transfer prices are observable, both firms headquarters will charge a transfer price above the marginal cost of the intermediate product to induce their...

This paper reviews two books by leading management accounting researchers which rely on advances in the economics of internal organisation for their theoretical foundation. The review relates the theoretical content of the two books to the broader research agendas of information economics and...

We study turnover and promotions of division managers in multidivisional firms. Turnover is negatively related to divisional accounting performance, positively related to industry performance, but not significantly related to firm performance or the performance of other divisions. Consistent...

Economic theory suggests that there are complementarities between the various components of a firm's organizational design (Milgrom and Roberts (1992)). With the exception of Nagar (2002) which examines the joint determination of two components of the management control system, incentive...

Markets have a remarkable capacity for producing efficient resource allocations when information about relative values is dispersed across economic agents. We explore the use of market mechanisms inside the firm to address a resource allocation problem, and compare the outcome with the first-...