You are not currently logged in.
Access JSTOR through your library or other institution:
If You Use a Screen ReaderThis content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Compensation and Transfer Pricing in a Principal-Agent Model
David Besanko and David S. Sibley
International Economic Review
Vol. 32, No. 1 (Feb., 1991), pp. 55-68
Published by: Wiley for the Economics Department of the University of Pennsylvania and Institute of Social and Economic Research, Osaka University
Stable URL: http://www.jstor.org/stable/2526931
Page Count: 14
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Preview not available
This paper studies transfer prices and compensation mechanisms in a principal-agent model with moral hazard and private information by the agent. Production requires unobservable effort by the agent and a purchased input. In general it is optimal for the principal to create an internal market for the input and charge the agent a tax or subsidy which differs from the market price. Conditions are found under which the optimal compensation function is given by the difference between a nonlinear "revenue" function depending only on output and a nonlinear transfer pricing function which depends only on the amount of the purchased input.
International Economic Review © 1991 Economics Department of the University of Pennsylvania