Cost Allocation as a Coordination Mechanism

K. Diaw

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This paper shows that cost allocation can endogenously arise as a coordination mechanism in a decentralized firm.This result is derived in a setting with multiple (internally supplied) resources shared by multiple users, which constitutes a departure from previous literature.While standard cost allocation procedures use one allocation base, the optimal cost allocation mechanism derived here can select many allocation bases, therefore providing support for the use of Activity Based Costing.Like the cost allocation itself, the selection of allocation bases also arises endogenously.
Original languageEnglish
Place of PublicationTilburg
Number of pages25
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper


  • cost allocation
  • pricing
  • decentralization
  • activity based costing


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