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An economic perspective on transfer pricing


Göx, Robert; Schiller, Ulf (2007). An economic perspective on transfer pricing. In: Chapman, Christopher S; Hopwood, Anthony G; Shields, Michael D. Handbook of Management Accounting Research, Vol. 2. Oxford: Elsevier, 673-693.

Abstract

This chapter reviews the recent economic literature on transfer pricing. As a starting point, we take Hirshleifer's transfer pricing model and discuss the basic structure of the most widely used model extensions. We review transfer pricing models with asymmetric information, transfer pricing models in incomplete contracting settings, strategic transfer pricing models, and international transfer pricing models with firms operating in different tax jurisdictions. The results offer a rich set of different explanations for the wide variety of transfer pricing methods in practice but they also show that it is impossible to give a general recommendation about “the” best transfer pricing method. By contrast, only limited progress has been made in arriving at a sufficient theory of decentralization. The models are either silent about organizational issues, or the advantages of decentralization are based on more or less restrictive informational assumptions. We conclude that the economic transfer pricing research has certainly improved the understanding of the relative usefulness of alternative transfer pricing methods for a carefully selected set of assumptions. Further theoretical and empirical research seems necessary for a better understanding of the economic reasons for decentralization and for explaining some unresolved empirical puzzles.

Abstract

This chapter reviews the recent economic literature on transfer pricing. As a starting point, we take Hirshleifer's transfer pricing model and discuss the basic structure of the most widely used model extensions. We review transfer pricing models with asymmetric information, transfer pricing models in incomplete contracting settings, strategic transfer pricing models, and international transfer pricing models with firms operating in different tax jurisdictions. The results offer a rich set of different explanations for the wide variety of transfer pricing methods in practice but they also show that it is impossible to give a general recommendation about “the” best transfer pricing method. By contrast, only limited progress has been made in arriving at a sufficient theory of decentralization. The models are either silent about organizational issues, or the advantages of decentralization are based on more or less restrictive informational assumptions. We conclude that the economic transfer pricing research has certainly improved the understanding of the relative usefulness of alternative transfer pricing methods for a carefully selected set of assumptions. Further theoretical and empirical research seems necessary for a better understanding of the economic reasons for decentralization and for explaining some unresolved empirical puzzles.

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Additional indexing

Item Type:Book Section, not_refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:2007
Deposited On:05 Jul 2013 08:52
Last Modified:18 Feb 2018 13:08
Publisher:Elsevier
ISBN:978-0-08-044754-4
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/S1751-3243(06)02009-8
Related URLs:https://www.recherche-portal.ch/zbz/action/display.do?fn=display&vid=ZAD&doc=ebi01_prod005831213 (Library Catalogue)
Other Identification Number:merlin-id:8257

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