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Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing

By Martin Shubik

Abstract

A goal of good management should be to design a reward system for those who take risks in making decisions in such a manner that the rewards to the individual correlate positively with the worth of the decision to the organization (taking into account the attitude of the top management to variance as well as to expected gain). In many organizations cost accounting supplies much of the information used for control at several levels. In this paper we examine some of the control problems that arise if joint costs are assigned by various cost accounting and some internal pricing conventions.

DOI identifier: 10.1287/mnsc.8.3.325
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