The basic incentive problem associated with internal transfers is:
A) divisional managers have private information about opportunity costs.
B) divisional managers have only public information about opportunity costs.
C) senior management have private information about opportunity costs.
D) senior management must make all information about opportunity costs public.

Question

Quizplus · Accepted Answer

The basic incentive problem associated with internal transfers is that divisional managers have private information about opportunity costs. This can lead to divisional managers overvaluing or undervaluing their own resources and bargaining for transfer prices that are not economically efficient. As a result, senior management must be able to accurately assess opportunity costs in order to set transfer prices and ensure that transfers are made in the most efficient manner possible.

The Basic Incentive Problem Associated with Internal Transfers Is