This paper studies an incomplete contracting model to compare the effectiveness of alternative transfer pricing mechanisms. Transfer pricing serves the dual purpose of guiding intracompany transfers and providing incentives for upfront investments at the divisional level. When transfer prices...

This paper examines inventory management from an incentive perspective. We show that when a manager has private information about future attainable revenues, the residual income performance measure based on historical cost can achieve optimal (second-best) incentives with regard to managerial...

Investment decisions frequently require coordination across multiple divisions of a firm. This paper explores a class of capital budgeting mechanisms in which the divisions issue reports regarding the anticipated profitability of proposed projects. To hold the divisions accountable for their...

Multidivisional firms frequently rely on external market prices in order to value internal transactions across profit centers. This paper examines the transfer pricing problem in a setting in which an upstream division has monopoly power in selling a proprietary component both to a downstream...

This paper examines inventory management from an incentive and control perspective. We demonstrate that the residual income performance measure based on historical cost accounting provides managers with incentives to make optimal production and inventory depletion decisions. The...

Firms frequently value internal transactions at external market prices subject to an intracompany discount. These discounts are generally explained by cost differences between internal and external sales. In a model where the supplying division has monopoly power in the external market, we find...