An Examination of the Efficiency of Resource Allocation Auctions within Firms

Resource Allocation Auctions within Firms. Journal of Accounting Research, December, 2007.

46 Pages Posted: 10 Dec 2011

See all articles by Stanley Baiman

Stanley Baiman

University of Pennsylvania - Accounting Department

Paul E. Fischer

University of Pennsylvania - Accounting Department

Madhav V. Rajan

Booth School of Business, University of Chicago

Richard E. Saouma

Eli Broad College of Business, Michigan State University

Date Written: November 8, 2006

Abstract

Markets have a remarkable capacity for producing efficient resource allocations when information about relative values is dispersed across economic agents. We explore the use of market mechanisms inside the firm to address a resource allocation problem, and compare the outcome with the first- and second-best solution. Although the market mechanism does not always attain the first-best or even second-best benchmark, it is significantly simpler to implement. Moreover, we identify circumstances under which the losses involved in using a market rather than the optimal second-best contract are negligible.

Keywords: capital budgeting, resource allocation, auctions, simple mechanisms, simple contracts, adverse selection, moral hazard

JEL Classification: J41, D82, M40, M46, L22

Suggested Citation

Baiman, Stanley and Fischer, Paul E. and Rajan, Madhav V. and Saouma, Richard E., An Examination of the Efficiency of Resource Allocation Auctions within Firms (November 8, 2006). Resource Allocation Auctions within Firms. Journal of Accounting Research, December, 2007., Available at SSRN: https://ssrn.com/abstract=939907

Stanley Baiman

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6782 (Phone)
215-573-2054 (Fax)

Paul E. Fischer

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Madhav V. Rajan

Booth School of Business, University of Chicago

1101 East 58th Street
Chicago, IL 60637-1561
United States

Richard E. Saouma (Contact Author)

Eli Broad College of Business, Michigan State University ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
51
Abstract Views
826
rank
431,107
PlumX Metrics