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- Title
PRODUCER INCENTIVES IN COST ALLOCATION.
- Authors
Young, H. P.
- Abstract
A general problem faced by both private firms and public enterprises is how to allocate the costs of common facilities fairly among the different goods and services produced. Any such cost accounting method can create incentives among product managers within the firm for altering the production function to their advantage. It is therefore both reasonable and desirable that a method reward increased efficiency by attributing lower unit costs to products whose marginal cost of production uniformly decreases. It is shown that there is only one "symmetric" method that satisfies this "monotonicity" principle—namely, the Aumann-Shapley price mechanism based on the Aumann-Shapley value for nonatomic games. This provides a new and simple axiomatization of this method without resorting to the usual assumption of additivity.
- Subjects
COST allocation; COST accounting; COST centers (Accounting); COST shifting; VARIABLE costs; ACCOUNTING methods; ACCOUNTING standards; HISTORICAL costs (Accounting); FACILITIES; FACTORIES
- Publication
Econometrica, 1985, Vol 53, Issue 4, p757
- ISSN
0012-9682
- Publication type
Article
- DOI
10.2307/1912652