Cost Allocation for Capital Budgeting Decisions Under Sequential Private Information

2007 ◽  
Author(s):  
Thomas Pfeiffer ◽  
Georg Thomas Schneider
Keyword(s):  
Private Information ◽  
Cost Allocation ◽  
Capital Budgeting

The Effects of Joint Cost Allocation on Intra-Firm Trade: A Comparison of Insulating and Non-Insulating Approaches

2016 ◽  
Vol 29 (2) ◽  
pp. 1-10 ◽  
Author(s):  
Anil Arya ◽  
Jonathan C. Glover ◽  
Brian Mittendorf
Keyword(s):  
Private Information ◽  
Cost Allocation ◽  
Transfer Pricing ◽  
Trade Barriers ◽  
Cost Allocations ◽  
Mutual Monitoring ◽  
Fruitful Cooperation

ABSTRACT While it is generally believed that insulating cost allocations help managers focus their attention on their own actions and shield them from the actions of others, non-insulating schemes can have appeal by encouraging teamwork and/or mutual monitoring among divisions. In this paper, we demonstrate that non-insulating allocations can induce fruitful cooperation among parties even when teamwork and mutual monitoring are nonissues. In particular, we show that in the case of intra-firm trade governed by transfer pricing, non-insulating allocations can permit one division to internalize benefits of private information borne by another and thereby alleviate information-induced trade barriers. Unlike in the traditional case of fostering teamwork, however, the cooperative nature of non-insulating allocation introduced by information differences is distinctly more circumstance-specific. In line with this view, the paper also identifies conditions under which the use of non-insulating allocation shifts divisional incentives in a manner that only adds further tension to trade.

Capital Budgeting and Managerial Compensation: Incentive and Retention Effects

2003 ◽  
Vol 78 (1) ◽  
pp. 71-93 ◽  
Author(s):  
Sunil Dutta
Keyword(s):  
Private Information ◽  
Investment Decision ◽  
Investment Project ◽  
Capital Budgeting ◽  
Managerial Compensation ◽  
Capital Investments ◽  
Compensation Contracts ◽  
Hurdle Rate ◽  
Hurdle Rates ◽  
Manager Incentives

This paper considers an agency model in which a firm's manager receives private information about an investment project. The manager has unique skills that are essential for implementing the project, and he can pursue the project inside the firm or as an outside venture on his own. The firm's owner thus faces a potential managerial retention problem, where the severity of the retention problem depends on the project's outside viability. My analysis shows that if the managerial retention problem is not too severe, the owner can delegate the investment decision to the manager and use a residua-lincome-based bonus contract to give the manager incentives to work hard and make appropriate investment decisions. If the retention problem is severe, however, then the owner must use an option-based compensation contract to retain the manager and provide him with appropriate incentives. I also establish that as the managerial retention problem becomes more severe, the owner reduces the rate of return, or hurdle rate, required to approve the investment project. These results predict that new-economy firms, in which managerial expertise is critical and yet mobile, are more likely to (1) include stock options in their managers' compensation contracts, and (2) apply lower hurdle rates for approving capital investments.

Cost Allocation for Capital Budgeting Decisions

2006 ◽  
Author(s):  
Tim Baldenius ◽  
Sunil Dutta ◽  
Stefan J. Reichelstein
Keyword(s):  
Cost Allocation ◽  
Capital Budgeting

Cost Allocation for Capital Budgeting Decisions

2007 ◽  
Vol 82 (4) ◽  
pp. 837-867 ◽  
Author(s):  
Tim Baldenius ◽  
Sunil Dutta ◽  
Stefan Reichelstein
Keyword(s):  
Cost Allocation ◽  
Cost Of Capital ◽  
Investment Decisions ◽  
Central Office ◽  
Capital Budgeting ◽  
Coordination Problem ◽  
Sharing Rule ◽  
Cost Allocations ◽  
Hurdle Rate ◽  
Issue Reports

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 reports, the central office ties the project acceptance decision to a system of cost allocations comprised of depreciation and capital charges. If the proposed project concerns a common asset that benefits multiple divisions, then our analysis derives a sharing rule for dividing the asset among the users. Capital charges are based on a hurdle rate determined by the divisional reports. We find that this hurdle rate deviates from the firm's cost of capital in a manner that depends crucially on whether the coordination problem is one of implementing a common asset or choosing among multiple competing projects. We also find that more severe divisional agency problems will increase the hurdle rate for common assets, yet this is generally not true for competing projects.

An online cost allocation model for horizontal supply chains

2021 ◽  
Vol 122 ◽  
pp. 102888
Author(s):  
Han Zou ◽  
Maged M. Dessouky ◽  
Shichun Hu
Keyword(s):  
Supply Chains ◽  
Cost Allocation ◽  
Allocation Model

A Cost-effectiveness Analysis of Aspirin versus Oral Anticoagulants after Acute Myocardial Infarction in Italy

1998 ◽  
Vol 80 (12) ◽  
pp. 887-893 ◽  
Author(s):  
Jacopo Gianetti ◽  
Gianfranco Gensini ◽  
Raffaele De Caterina
Keyword(s):  
Myocardial Infarction ◽  
Coronary Artery Disease ◽  
Cost Effectiveness ◽  
Interventional Procedures ◽  
Cost Allocation ◽  
Oral Anticoagulants ◽  
The United States ◽  
Cost Effectiveness Analysis ◽  
Effectiveness Analysis ◽  
Artery Disease

SummaryAims. The recent publication of two large trials of secondary prevention of coronary artery disease with oral anticoagulants (WARIS and ASPECT) has caused a revival of the interest for this antithrombotic therapy in a clinical setting where the use of aspirin is common medical practice. Despite this, the preferential use of aspirin has been supported by an American cost-effectiveness analysis (JAMA 1995; 273: 965). Methods and Results. Using the same parameters used in that analysis and incidence of events from the Antiplatelet Trialists Collaboration and the ASPECT study, we re-evaluated the economic odds in favor of aspirin or oral anticoagulants in the Italian Health System, which differs significantly in cost allocation from the United States system and is, conversely, similar to other European settings. Recalculated costs associated with each therapy were 2,150 ECU/ patient/year for oral anticoagulants and 2,187 ECU/patient/year for aspirin. In our analysis, the higher costs of oral anticoagulants versus aspirin due to a moderate excess of bleeding (about 10 ECU/ patient/year) and the monitoring of therapy (168 ECU/ patient/year) are more than offset by an alleged savings for recurrent ischemic syndromes and interventional procedures (249 ECU/ patient/year). Conclusions. Preference of aspirin vs. oral anticoagulants in a pharmaco-economical perspective is highly dependent on the geographical situation whereupon calculations are based. On a pure cost-effectiveness basis, and in the absence of data of direct comparisons between aspirin alone versus I.N.R.-adjusted oral anticoagulants, the latter are not more expensive than aspirin in Italy and, by cost comparisons, in other European countries in the setting of post-myocardial infarction.

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