Intertemporal Cost Allocation and Investment Decisions
This paper considers the profit‐maximization problem of a firm that must make sunk investments in long‐lived assets to produce output. It is shown that if per‐period accounting income is calculated using a simple and natural allocation rule for investment, called the relative replacement cost (RRC)...
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| Veröffentlicht in: | The Journal of political economy 2008-10, Vol.116 (5), p.931-950 |
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| Format: | Artikel |
| Sprache: | eng |
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| container_end_page | 950 |
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| container_title | The Journal of political economy |
| container_volume | 116 |
| creator | Rogerson, William P. |
| description | This paper considers the profit‐maximization problem of a firm that must make sunk investments in long‐lived assets to produce output. It is shown that if per‐period accounting income is calculated using a simple and natural allocation rule for investment, called the relative replacement cost (RRC) rule, under a broad range of plausible circumstances, the firm can choose the fully optimal sequence of investments over time simply by choosing a level of investment each period in order to maximize the next period’s accounting income. Furthermore, in a model in which shareholders delegate the investment decision to a better‐informed manager, it is shown that if accounting income based on the RRC allocation rule is used as a performance measure for the manager, robust incentives are created for the manager to choose the profit‐maximizing sequence of investments, regardless of the manager’s own personal discount rate or other aspects of the manager’s personal preferences. |
| doi_str_mv | 10.1086/591909 |
| format | Article |
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Furthermore, in a model in which shareholders delegate the investment decision to a better‐informed manager, it is shown that if accounting income based on the RRC allocation rule is used as a performance measure for the manager, robust incentives are created for the manager to choose the profit‐maximizing sequence of investments, regardless of the manager’s own personal discount rate or other aspects of the manager’s personal preferences.</description><identifier>ISSN: 0022-3808</identifier><identifier>EISSN: 1537-534X</identifier><identifier>DOI: 10.1086/591909</identifier><identifier>CODEN: JLPEAR</identifier><language>eng</language><publisher>Chicago: The University of Chicago Press</publisher><subject>Business investment ; Business studies ; Capital costs ; Capital investments ; Capital stocks ; Cost accounting ; Cost allocation ; Cost function ; Decision making ; Depreciation ; Economic theory ; Financial investments ; Financial management ; Industrial organization ; Investment decision ; Investment decisions ; Investment strategies ; Political economy ; Profit maximization ; Replacement costs ; Studies ; User costs</subject><ispartof>The Journal of political economy, 2008-10, Vol.116 (5), p.931-950</ispartof><rights>2008 by The University of Chicago. 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Furthermore, in a model in which shareholders delegate the investment decision to a better‐informed manager, it is shown that if accounting income based on the RRC allocation rule is used as a performance measure for the manager, robust incentives are created for the manager to choose the profit‐maximizing sequence of investments, regardless of the manager’s own personal discount rate or other aspects of the manager’s personal preferences.</description><subject>Business investment</subject><subject>Business studies</subject><subject>Capital costs</subject><subject>Capital investments</subject><subject>Capital stocks</subject><subject>Cost accounting</subject><subject>Cost allocation</subject><subject>Cost function</subject><subject>Decision making</subject><subject>Depreciation</subject><subject>Economic theory</subject><subject>Financial investments</subject><subject>Financial management</subject><subject>Industrial organization</subject><subject>Investment decision</subject><subject>Investment decisions</subject><subject>Investment strategies</subject><subject>Political economy</subject><subject>Profit maximization</subject><subject>Replacement costs</subject><subject>Studies</subject><subject>User costs</subject><issn>0022-3808</issn><issn>1537-534X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2008</creationdate><recordtype>article</recordtype><recordid>eNpdkE1LxDAQhoMouK76D4Qi4q06-Wqa47J-LSx4UfBW0nSqXbpNTVLBf2-lsgvOZZjh4eHlJeScwg2FPLuVmmrQB2RGJVep5OLtkMwAGEt5DvkxOQlhA-NQ4DOSrbqIPuK2d960ydKFmCza1lkTG9clpquSVfeFIW6xi8kd2iaM_3BKjmrTBjz723Py-nD_snxK18-Pq-VinVrBspjWWIGUpVB5ZUoGTCi0xuaItdIVl7XMxxO0UaxCnlWqzkpNsUYrlK2YLfmcXE_e3rvPYYxRbJtgsW1Nh24IBVeQgVYwgpf_wI0bfDdmK6iWguUZFXub9S4Ej3XR-2Zr_HdBofjtrpi6G8GrCRzsR2PNu-s9hrBX7rCLCduE6PxOJoCBAqH4DwTAdyc</recordid><startdate>20081001</startdate><enddate>20081001</enddate><creator>Rogerson, William P.</creator><general>The University of Chicago Press</general><general>University of Chicago, acting through its Press</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20081001</creationdate><title>Intertemporal Cost Allocation and Investment Decisions</title><author>Rogerson, William P.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c426t-fed055b478dab20247ecac8eef79d35f58cac09a72de36d7f6b91efec47cd2cb3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2008</creationdate><topic>Business investment</topic><topic>Business studies</topic><topic>Capital costs</topic><topic>Capital investments</topic><topic>Capital stocks</topic><topic>Cost accounting</topic><topic>Cost allocation</topic><topic>Cost function</topic><topic>Decision making</topic><topic>Depreciation</topic><topic>Economic theory</topic><topic>Financial investments</topic><topic>Financial management</topic><topic>Industrial organization</topic><topic>Investment decision</topic><topic>Investment decisions</topic><topic>Investment strategies</topic><topic>Political economy</topic><topic>Profit maximization</topic><topic>Replacement costs</topic><topic>Studies</topic><topic>User costs</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Rogerson, William P.</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>The Journal of political economy</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Rogerson, William P.</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Intertemporal Cost Allocation and Investment Decisions</atitle><jtitle>The Journal of political economy</jtitle><date>2008-10-01</date><risdate>2008</risdate><volume>116</volume><issue>5</issue><spage>931</spage><epage>950</epage><pages>931-950</pages><issn>0022-3808</issn><eissn>1537-534X</eissn><coden>JLPEAR</coden><abstract>This paper considers the profit‐maximization problem of a firm that must make sunk investments in long‐lived assets to produce output. 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| ispartof | The Journal of political economy, 2008-10, Vol.116 (5), p.931-950 |
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| language | eng |
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| source | Jstor Complete Legacy; University of Chicago Press Journals (Full run); Business Source Complete |
| subjects | Business investment Business studies Capital costs Capital investments Capital stocks Cost accounting Cost allocation Cost function Decision making Depreciation Economic theory Financial investments Financial management Industrial organization Investment decision Investment decisions Investment strategies Political economy Profit maximization Replacement costs Studies User costs |
| title | Intertemporal Cost Allocation and Investment Decisions |
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