An Experimental Evaluation Of The Strategic Use Of Managerial Incentive Contracts

Abstract: Much accounting research has focused on cost allocation strategies. New cost-allocation systems, such as activity-based costing, have been developed and explored. Even with these new systems, some firms continue to employ less precise allocation methods that over or under-allocate costs. This paper attempts to demonstrate an explanation of why firms might wish to over or under-allocate costs by experimentally examining a duopoly market.