search query: @author Prusa, Th. J. / total: 1
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| Author: | Prusa, Th. J. |
| Title: | An incentive compatible approach to the transfer pricing problem |
| Journal: | Journal of International Economics
1990 : FEB, VOL. 28:1-2, p. 155-172 |
| Index terms: | TRANSFER PRICING DIVISIONALISED COMPANIES PROFIT PLANNING INTERNAL REPORTING |
| Language: | eng |
| Abstract: | An alternative approach to regulating certain types of transfer pricing is offered. "Transfer pricing" is a term used to describe the price setting of transactions between different divisions of the same firm. If the multinational enterprise's transfer price decision is not regulated, it will manipulate the transfer price in order to maximize net global profit. Usual approaches argue for ad hoc penalty schedules to mitigate the effects of manipulation. The new approach is an incentive compatible one which incorporates the informational asymmetries that encourage misreports. The optimal regulatory policy has "self-enforcing" properties. That is, the firm will find it profit maximizing to report true costs. |
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