Efficiency Properties of Mutually Satisfactory Cost Allocations.

John S. Hughes; James H. Scheiner

doi:10.2308/tar-4511421

Efficiency Properties of Mutually Satisfactory Cost Allocations.

John S. Hughes¹; James H. Scheiner²

¹ Associate Professor of Business Administration, Duke University 1 · ² Assistant Professor of Accounting, University of Tennessee, Knoxville 2

The Accounting Review 1980

ABSTRACT: Game-theoretic schemes have been proposed for cost allocation problems largely on a basis of their equity properties. However, before employing such schemes, one also needs to consider how well they satisfy the efficiency conditions consistent with optimal quantity decisions from a firm-wide standpoint. The intent of this note is (1) to demonstrate analytically that the game-theoretic schemes described recently in the accounting literature do not, in general, lead to the satisfaction of efficiency conditions, and (2) to question the viability of the analogy between welfare economics and multidivision firms as contexts for the application of game theory.

DOI: 10.2308/tar-4511421
Volume: 55 (1)
Pages: 85-95
Language: en
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