Groves Mechanism vs. Profit Sharing for Corporate Budgeting – An Experimental Analysis with Preplay Communication
Year: 2008
Type: article
Abstract: This paper experimentally explores the efficiency of the Groves mechanism and a profit sharing scheme in a corporate budgeting context. Specifically, it examines the effects of anonymous communication on both incentive schemes. The results show that although the Groves mechanism is analytically superior to the profit sharing scheme, the latter turns out to be advantageous for headquarters in our experiment. This is essentially due to the effects of communication on both incentive schemes. Under the profit sharing scheme, communication improves coordination and reduces inefficient resource allocation. Under the Groves mechanism, however, it leads to stable collusion strategies of the participants, and thus increases compensation costs.
Source: European Accounting Review
Institutions: University of Göttingen, Clausthal University of Technology
Language: English
Subfield: Management Information Systems
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2107003316