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Cost allocation as a coordination mechanism

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Author Info
K. Diaw, (Tilburg University, Center for Economic Research)
Abstract

This paper shows that cost allocation can endogenously arise as a coordination mechanism in a decentralized firm. This result is derived in a setting with multiple (internally supplied) resources shared by multiple users, which constitutes a departure from previous literature. While standard cost allocation procedures use one allocation base, the optimal cost allocation mechanism derived here can select many allocation bases, therefore providing support for the use of Activity Based Costing. Like the cost allocation itself, the selection of allocation bases also arises endogenously.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 128.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:2003128

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jacques Cremer, 1980. "A Partial Theory of the Optimal Organization of a Bureaucracy," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 683-693, Autumn. [Downloadable!] (restricted)
  2. Tim Baldenius & Stefan Reichelstein, 2006. "External and Internal Pricing in Multidivisional Firms," Journal of Accounting Research, Blackwell Publishing, vol. 44(1), pages 1-28, 03. [Downloadable!] (restricted)
  3. Holmstrom, Bengt & Tirole, Jean, 1991. "Transfer Pricing and Organizational Form," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(2), pages 201-28, Fall.
  4. Malcomson, James M, 1978. "Prices vs. Quantities: A Critical Note on the Use of Approximations," Review of Economic Studies, Blackwell Publishing, vol. 45(1), pages 203-07, February. [Downloadable!] (restricted)
  5. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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