Groves Mechanism vs. Profit Sharing for Corporate Budgeting – an Experimental Analysis with Preplay Communication

Arnold, Markus C.; Ponick, Eva; Schenk-Mathes, Heike Y. (2008). Groves Mechanism vs. Profit Sharing for Corporate Budgeting – an Experimental Analysis with Preplay Communication. European Accounting Review, 17(1), pp. 37-63. Routledge 10.1080/09638180701819980

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This paper experimentally explores the efficiency of the Groves mechanism and a profit sharing scheme in a corporate budgeting context. Specifically, it examines the effects of anonymous communication on both incentive schemes. The results show that although the Groves mechanism is analytically superior to the profit sharing scheme, the latter turns out to be advantageous for headquarters in our experiment. This is essentially due to the effects of communication on both incentive schemes. Under the profit sharing scheme, communication improves coordination and reduces inefficient resource allocation. Under the Groves mechanism, however, it leads to stable collusion strategies of the participants, and thus increases compensation costs.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute for Accounting and Controlling > Managerial Accounting

UniBE Contributor:

Arnold, Markus Christopher

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

0963-8180

Publisher:

Routledge

Language:

English

Submitter:

Lynn Carole Selhofer

Date Deposited:

11 Mar 2020 15:10

Last Modified:

11 Mar 2020 15:10

Publisher DOI:

10.1080/09638180701819980

BORIS DOI:

10.7892/boris.141305

URI:

https://boris.unibe.ch/id/eprint/141305

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