Cost Allocation Revisited: An Optimality Result

Seungjin Whang
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Seungjin Whang: Graduate School of Business, Stanford University, Stanford, California 94305

Management Science, 1989, vol. 35, issue 10, 1264-1273

Abstract: The resource manager of a firm is faced with capacity and pricing decisions with regard to a congestion-prone system such as computer/communication facilities. Difficulties arise since the manager is uninformed of the system demand when the capacity decision is to be made. A game-theoretic model is developed to analyze the effects of different accounting rules on the elicitation of relevant information and ex-post efficiency in acquisition and allocation decisions. The key result is that the cost allocation method (aided by an anonymous reporting scheme) is indeed, as asserted by Zimmerman (Zimmerman, J. 1979. The costs and benefits of cost allocations. Accounting Rev. 54(July) 504--521.), a full-information-efficient rule achieving optimality both in acquisition and allocation decisions. Discussions of the main assumptions underlying this result are provided.

Keywords: cost accounting; incentive; congestion; asymmetric information (search for similar items in EconPapers)
Date: 1989
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