Specific investment under negotiated transfer pricing: an efficiency result

Article Abstract:

A model of negotiated transfer pricing is analyzed in which divisional managers are allowed to make specific investments that boost the value of the exchange of goods and services between a company's various divisions or profit centers. These investments cannot be reversed and the managers must make them before they receive information that can be used to determine the most advantageous intracompany trade. The results of the analysis suggest that a system of negotiated transfer pricing will result in efficient outcomes if the divisions sign fixed-price agreements before they make their investment decisions. These contracts are bound to be renegotiated after the managers receive new revenue and cost information. Nevertheless, they offer effective protection to the divisions' investments.

Negotiation, Negotiations, Transfer pricing, Decentralization (Management)

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Constructing incentive schemes for governent contracts: an application of agency theory

Article Abstract:

Budgeted-based incentive schemes as applied to government contracting were examined. These incentive schemes, which used results and insights from agency theory, could be seen as extensions of the cost-plus-incentive-fee contracts. A four-step approach to developing a budget-based incentive scheme was introduced. The method called for the government to evaluate basic parameters regarding its cost expectations, to assess the cost-share parameters and to compute for the target profits. Finally, it was recommended that the resulting matrix of incentive profits be appendend by appropriate interpolation rules. The application of budget-based schemes in Germany was investigated.

Incentives (Business), Agency theory, Public contracts, Government contracts

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Cost allocation for capital budgeting decisions

Article Abstract:

The effects of interdependency between divisions of a firm on capital budgeting decisions during long-term investment projects are presented.

United States, Management dynamics, Capital Budgeting, Methods, Management, Company business management, Investment management, Capital budgets, Departments (Business)

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