An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Kashi R. Balachandran
New York University

Shu - Hsing Li
National Taiwan University

Hsiao - Wen Wang
National Changhua University of Education

Taychang Wang
National Taiwan University

Abstract: The objective of the paper is to study how transfer pricing schemes interact with subcontractors’ opportunistic behaviors to affect supply chain coordination. We model the supply chain incorporating asymmetric information among all the parties, contractor’s innovation activities, subcontractors’ misappropriation, and transfer pricing schemes. We examine the impact of various transfer pricing schemes on supply chain efficiency. Specifically, we conduct a performance comparison between the variable-cost transfer pricing scheme and the full-cost transfer pricing scheme. We find that the subcontractor’s choice of a transfer pricing scheme affects the contractor’s sourcing decisions and the supply chain performance, and the variable-cost transfer pricing scheme performs better in achieving the supply chain coordination.

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