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Experimental Evidence on Transfer Pricing

Author

Listed:
  • Tran Quoc H.

    (Bridgewater State University, Bridgewater, USA)

  • Croson Rachel T. A.

    (University of Texas, Arlington, USA)

  • Seldon Barry J.

    (University of Texas, Dallas, USA)

Abstract

We use incentivized economics experiments to test both the point predictions and comparative static predictions of optimal transfer pricing models, comparing behavior under varying conditions, including wholly versus partially-owned subsidiaries and different tariff and tax rates. As predicted, we find that transfer prices are responsive to relative tax and tariff rates as well as ownership proportions. Additionally, we examine convergence and learning in this setting. While individuals do not choose optimal transfer prices, their choices converge to optimal levels with experience. This paper thus makes two important contributions. First, by comparing behavior with theoretical predictions it provides evidence of whether (and when) individuals set transfer prices optimally. Second, by comparing behavior under conditions of full and partial ownership it provides evidence on the impact of policy interventions (like regulating ownership proportions by MNEs) on tax revenues.

Suggested Citation

  • Tran Quoc H. & Croson Rachel T. A. & Seldon Barry J., 2016. "Experimental Evidence on Transfer Pricing," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 50(1), pages 27-48, June.
    • Handle: RePEc:vrs:ijomae:v:50:y:2016:i:1:p:27-48:n:3
    DOI: 10.1515/ijme-2016-0010
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    References listed on IDEAS

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    Cited by:

    1. Cascavilla, Alessandro, 2023. "Negotiated transfer pricing and uncertain regulation: a simulated trust game approach," MPRA Paper 118703, University Library of Munich, Germany.

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    More about this item

    Keywords

    transfer pricing; economic experiments; multinational enterprise; learning;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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