An Economic Perspective on Transfer Pricing

73 Pages Posted: 26 Feb 2006 Last revised: 27 May 2009

See all articles by Robert F. Göx

Robert F. Göx

University of Zurich - Managerial Accounting; University of Zurich - Faculty of Economics, Business Administration and Information Technology

Ulf Schiller

University of Basel

Date Written: February 1, 2006


This chapter reviews the recent economic literature on transfer pricing. As a starting point, we take Hirshleifer's transfer pricing model and discuss the basic structure of the most widely used model extensions. We review transfer pricing models with asymmetric information, transfer pricing models in incomplete contracting settings, strategic transfer pricing models, and international transfer pricing models with firms operating in different tax jurisdictions. The results offer a rich set of different explanations for the wide variety of transfer pricing methods in practice but they also show that it is impossible to give a general recommendation about 'the' best transfer pricing method. By contrast, only limited progress has been made in arriving at a sufficient theory of decentralization. The models are either silent about organizational issues, or the advantages of decentralization are based on more or less restrictive informational assumptions. We conclude that the economic transfer pricing research has certainly improved the understanding of the relative usefulness of alternative transfer pricing methods for a carefully selected set of assumptions. Further theoretical and empirical research seems necessary for a better understanding of the economic reasons for decentralization and for explaining some unresolved empirical puzzles.

Keywords: Transfer Pricing, Decentralization, Responsibilty Centers, Theory of the firm

JEL Classification: D20, D23, L22, M20, M40, M46

Suggested Citation

Goex, Robert F. and Schiller, Ulf, An Economic Perspective on Transfer Pricing (February 1, 2006). Available at SSRN: or

Robert F. Goex (Contact Author)

University of Zurich - Managerial Accounting ( email )

Plattenstrasse 14
Zurich, CH-8032

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zürich, 8032

Ulf Schiller

University of Basel ( email )

Peter-Merian-Weg 6
Basel, 4002

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