Joint cost allocation for multiple lots

Article Abstract:

The joint cost allocation problem emerges when there are many available lots or resources to serve different products or divisions. A two-phase model is presented to address this challenge. In the first phase, the optimal set of lots to be acquired is selected and given the optimal set while the products employing each acquired lot are also determined. In the second phase, a stable full cost allocation approach is designed in such a way that will not compel the divisions to create coalitions to cut the allocated joint costs. With the optimal dual solution of the lot selection phase, a joint cost allocation procedure based on the concept of the propensity to contribute and demonstrate that this allocation is also stable is provided. This allocation is demonstrated to be in core if a dual gap does not exist in the first phase.

Cost control

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The Groves Scheme, Profit Sharing and Moral Hazard

Article Abstract:

Intrafirm resource allocation is explored. Managerial effort is recognized as a decision variable. This brings up the problem of 'moral hazard.' The Groves Scheme is reinterpreted to handle this problem. An example of profit sharing is used to show that a scheme may break down in the presence of moral hazard. The model developed incorporates asymmetric information and divergence of preferences for effort.

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The Groves Scheme, Profit Sharing and Moral Hazard

Article Abstract:

Intrafirm resource allocation is studied. The Groves scheme and profit sharing are two incentive mechanisms discussed. Effort aversion is allowed by the model developed. A reinterpreted Groves scheme yields a dominant equilibrium and profit sharing will not produce optimal results.

Profit sharing, Companies, Optimization, Incentives

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