National Differences in the Use of Internal Transfer Prices

by David Granick



The article focuses on national differences in the use of internal transfer prices in the U.S. Large industrial corporations, like all other organizations, face a continuous problem of motivating their employees toward pursuing corporate goals rather than some other set of objectives. The problem of motivating scientists to pursue profitable lines of research, rather than other paths that may be more scientifically interesting and can be rationalized as profit-seeking, is one example. Persuading manual workers to respond to piece rates by increasing output, rather than by formal or informal group pressure on individuals to avoid becoming rate-busters, is another such problem. Suboptimization is a subset of these types of problems. It refers to rational behavior by groups, rather than individuals, within the organization, in which the goals of the group are pursued at the expense of the goals of the organization as a whole. From the point of view of the organization, a major managerial problem is to structure group rewards so that the group's own goals are best achieved when the group contributes most effectively to the goals of the organization as a whole.

California Management Review

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