Abstract ABSTRACT: Game-theoretic schemes have been proposed for cost allocation problems largely on a basis of their equity properties. However, before employing such schemes, one also needs to consider how well they satisfy the efficiency conditions consistent with optimal quantity decisions from a firm-wide standpoint. The intent of this note is (1) to demonstrate analytically that the game-theoretic schemes described recently in the accounting literature do not, in general, lead to the satisfaction of efficiency conditions, and (2) to question the viability of the analogy between welfare economics and multidivision firms as contexts for the application of game theory.
Hughes et al. (Tue,) studied this question.