On Gordon's Model of Transfer-Pricing System.

Abstract This article comments on the proposed model of transfer-pricing system by Myron Gordon in a socialist economy context which showed that under certain conditions the model might induce inefficient behavior or might generate some type of dysfunctional policy on the part of management or employees. The basic idea underlying the model is the proper allocation of resources in the absence of the market-mechanism. In other words, it is an attempt to operationalize a visible-hand in the absence of an invisible one and in the absence of private ownership of capital in such a way that efficient allocation of resources prevails. The development of the model takes socialism for granted. In the analysis of that model, the focus of attention centered on the validity with which the model approximates the relatively efficient work of the market-mechanism. Under a certain set of conditions, it was found that the approximation is rather weak. Accordingly, some points, possibly extending the model, were suggested. Generally, however, the model makes the continuation of the line of thought initiated by E. Barone and Oskar Lang more plausible. Furthermore, the model is also applicable to decentralized companies in a capitalist system. In these respects, Professor Gordon has made a significant contribution.