Capacity Rights and Full-Cost Transfer Pricing

This paper examines the theoretical properties of full-cost transfer prices in multidivisional firms. In our model, divisional managers are responsible for initial acquisition productive capacity and utilization that subsequent periods, once operational uncertainty has been resolved. We examine alternative variants pricing with property discounted sum payments is equal to cost present value all variable costs output supplied a division. Our analysis identifies environments where particular induce efficiency both investments levels. findings highlight need proper integration intracompany rules control rights over assets. was accepted by Suraj Srinivasan, accounting.