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This study considers an internal production option for a contractor and analyzes its effect on the supply chain decisions when the contractor has innovated and the subcontractor has an incentive for opportunistic behavior. In contrast to the single disclosure threshold in the benchmark scenario where the contractor lacks in-house capability, we find two thresholds in the referred scenario. When information misappropriation is possible and the contractor has in-house capability, the contractor will organize a coordinated supply chain only when innovations fall between the two thresholds. Compared to the benchmark scenario, in-house capability has a positive effect on the contractor's incentive to innovate and an ambiguous effect on the subcontractor's incentive to invest in the production process. When the contractor needs to incur an extra cost to build in-house capability, the contractor keeps the same levels of investment compared to the case of no additional in-house capability cost, whereas the subcontractor increases the levels of investment. Furthermore, we find that in the presence of potential misappropriation on the part of the subcontractor, the higher the level of in-house capability, the less likely the contractor will be to outsource innovative products that generate higher profitability. This study can explain why firms strategically outsource low-end products and produce high-end products themselves. This study provides new results on the effects of in-house capability on the strategic interactions of parties in supply chains and, hence, on supply chain efficiency.

Despite its theoretical superiority, the activity-based costing (ABC) model has had only moderate success in replacing the traditional volume-based absorption costing models in complex organizations worldwide. Even in organizations that have launched ABC projects, the implementations often do not sustain. In response to this general lack of enthusiasm worldwide for ABC, accountants developed the time-driven activity-based costing (TDABC) model as an alternative cost allocation model. This paper presents a comparison of the TDABC model with ABC, and considers if this alternative cost allocation model (1) is easier to implement from an international perspective and (2) provides comparable cost information for decision making. We use a case study in a country outside the model's country of origin to understand the similarities and differences in absorption costing systems that use ‘volume,’ ‘activities,’ and ‘time’ as the drivers of indirect cost allocations. We also use the case study to ascertain if any country‐specific factors impede ABC implementation. We conclude the following: the TDABC model has similar implementation complexities to ABC if modelling conditions are strictly adhered to; these complexities are independent of country‐specific factors; and in its simplest form, the model generates the same decision information errors of traditional costing. Refereed/Peer-reviewed

SYNOPSIS: Under various carbon emissions trading schemes proposed around the world (including the United States), organizations will need to implement carbon management schemes to meet carbon ration targets, earn revenue, and reduce costs. Emission Trading Schemes will impact the accounting profession significantly; however,discussions on how to report these transactions are in the very formative stages. So far the accounting literature has focused on the reporting of current carbon assets and liabilities in the balance sheet and the timing effects of carbon releases in the income statement. However, there has been little or no discussion as to how to value and report the underlying non-current assets (and liabilities) that produce or use carbon allowances on the balance sheet. This paper proposes a model for valuing an organization’s non-current carbon sequestration and emission capabilities. A new metric, Environmental Capability Enhancing Asset (ECEA), is introduced as the underpinning for the conversion of non-monetary CO2 emission and sequestration measures to monetary values.The process of bringing these monetized values within the boundaries of conventional (double-entry) GAAP is also demonstrated. Refereed/Peer-reviewed

The objective of this paper is to study how transfer-pricing schemes interact with subcontractors' opportunistic behaviors to affect supply chain coordination. We model the supply chain by incorporating asymmetric information among all the parties, contractors' innovation activities, subcontractors' misappropriation, and transfer-pricing schemes. We examine the impact of various transfer-pricing schemes on supply chain efficiency. Specifically, we conduct a performance comparison between the variable-cost transfer-pricing scheme and the full-cost transfer-pricing scheme. We find that the subcontractor's choice of transfer-pricing scheme affects the contractor's sourcing decisions and supply chain performance. For a selected set of parameters we show that the variable-cost transfer-pricing scheme achieves better supply chain coordination.

The concentrations of greenhouse gases in the atmosphere have risen dramatically, leading to the possibility of costly disruption from rapid climate change. This calls for greater attention and precautionary measures to be put in place, both globally and locally. Governments, business entities and consumers would be affected by the extent to which such precautionary measures are incorporated in their decision-making process. Business entities need to consider such issues as trading in carbon allowances (or permits), investing in low-carbon dioxide (CO2) emission technologies, counting the costs of carbon regularity compliance, and passing on the increased cost of carbon regulation to consumers through higher prices. Such considerations require information for informed decision making. This paper reports on a qualitative research study undertaken to consider the impact of the Kyoto Protocol mechanisms on the changing information paradigms of cost and managerial accounting. It is demonstrated that the information from strategic cost management systems will be particularly useful in this new carbon economy, especially in evaluating the “whole-of-life” costs of products and services in terms of carbon emissions. Similarly, the study discusses how strategic management accounting information would facilitate decisions on business policy, human resource management, marketing, supply chain management, and finance strategies and the resultant evaluation of performance.

PurposeIn recent years, performance measurement and management (PMM) has received much attention from researchers and practitioners. Despite the growing use of PMM systems, companies experience difficulty in implementing such systems, with consequent risk of partial benefits or total goal failure. The literature on PMM is quite vast, but only few of the models address the problem in its entirety, while many other works focus on specific issues related to PMM. The purpose of this paper is to analyze the state of the art of PMM models and propose an integrated framework as a base for performance measurement and management design.Design/methodology/approachThe evolution of the literature on PMM models and frameworks is highlighted starting from the development of the last twenty years. Further, the characteristics raised in the literature are merged so as to identify the milestones of an integrated performance measurement and management system. Based on it, an integrated framework is proposed as a base for a cohesive PMM design.FindingsThe framework integrates five systems: a performance system, a cost system, a capability evaluation system, a benchmarking system and a planning system.Research limitations/implicationsThough the proposed framework is a starting point for performance measurement and management design, it provides important guidelines for successful implementations of PMM initiatives inside companies.Practical implicationsThe paper elaborates on the findings in the literature through a review and explores how the framework proposed might be implemented and improved.Originality/valueThe framework is based on the belief that PMM study requires an intensive and deep comprehension of the business in focus, which begins with a complete analysis of all the key activities in the company and their related drivers. Accordingly, the framework proposed starts with a defining “which” information should be analyzed, “how” they should be processed and “how” they should be integrated for generating valuable information to facilitate managers' decision‐making processes.

This paper develops an approach to allocate common costs to two divisions that share a process, where there is a trade-off between the joint investment in the process and the delays that a division’s jobs are expected to experience there. We allow one division’s jobs to have priority over the other division’s jobs. One purpose of allocation is to obtain accuracy in costing of products reflecting their consumption of resources. The second purpose, the incentive issue, is to elicit truthful reports of private information possessed by each division on (i) delay cost parameters or (ii) expected usage, this information being needed for the investment decision. In case (i), we find that when a division’s private information on its delay costs is poor or non-existent, it would prefer to invest at a weakly higher level than its accounting cost information justifies. In other words, a firm that allocates service center costs depending only on accounting measures of delay costs will under-invest in a shared facility. In case (ii), we find that to elicit truthful reporting by divisions requires a cost allocation rule that involves a complex monitoring of various physical parameters broadly related to the pattern of waiting times. This complexity is driven by the fact that one division has priority. However because actual usage provides an ex post estimate of expected usage up to some random error, a penalty scheme based on directly monitoring actual usage can be used to enforce truth telling up to any desired approximation.

Allocation of costs of a commonly used service center by several jobs is an important aspect of determining product costs. Jobs that access a common service center cause delay to other jobs and this is captured in this article for developing a theoretically correct opportunity cost approach to cost allocation. The approach is used to determine the benefit obtained from setting up a capacity for the center to help in the determination of whether to outsource the service or to set up own facility. Keywords: fixed cost; common service; allocation; delay costs; opportunity cost

Milgrom and Roberts argue that modern manufacturing practices are mutually complementary and their adoption is a profit-maximizing response on the part of firms. Keywords: manufacturing technologies; product costing; direct materials; direct labor; factory overhead

We examine a supply chain in which the final product consists of components made by a buyer and a supplier. In the single moral-hazard case, the buyer’s quality is observable, whereas in the double moral-hazard case, the buyer’s quality is not observable. The supplier’s quality is not observable in both the single and double moral-hazard cases. In each case, we examine a warranty/penalty contract between the buyer and the supplier based on information from incoming inspection and external failures. When the warranty contract is based on information from external failures in the single moral-hazard case, the first-best quality is achieved, whereas in the double moral-hazard case, the first-best quality is achieved if the supplier is not held responsible for the buyer’s defects. When the warranty contract is based on information from incoming inspection, the first-best is achieved in both the single and double moral-hazard cases, even when the incoming inspection does not identify all of the supplier’s defectives. An analysis of whether the penalty on the supplier in each case meets a fairness criterion—that is, the penalty does not exceed the manufacturer’s external failure cost—indicates that the fairness criterion is met by the warranty contract based on information from incoming inspection when the first-best incoming inspection is sufficiently high. However, if the first-best incoming inspection is low and the precision of pinpointing the supplier’s responsibility for external failure is sufficiently high, the warranty contract based on external failures could satisfy the fairness criterion.

We consider an M/G/1 queue with multiple users where service capacity can be improved at a cost by reducing the mean and variance of service time and each user has private information on his expected usage. The firm's headquarter requires information on expected usage to determine the optimum service capacity. We develop a simple cost allocation scheme where a charge is applied to realized usage. This charge is computed by dividing the service capacity costs by the total reported expected usage weighted by the cost per unit time delay. The difference between the service capacity cost and the total charge applied to realized usage is credited/charged to the users based on the proportion of reported expected usage weighted by the cost per unit time delay. This cost allocation scheme (a) induces truthful reports of expected usage, (b) maximizes the expected net benefit of each user with respect to the service capacity, (c) shares all the service capacity costs, (d) achieves the same service capacity that the firm's headquarter would choose in an unconstrained maximization problem with no private information, and (e) uses only the realized and reported expected usages. We also examine whether the cost allocation scheme provides incentives for each user to obtain good forecasts on expected usage.

Most of the current studies on transfer pricing under asymmetric information focus on a single principal and a single agent. Under a separating management and ownership assumption, transfer pricing is at minimum a three-person problem involving one principal and two agents. This paper considers a transfer pricing problem with two agents who possess private information and seek to maximize their net cash flows, instead of divisional accounting profits. The objectives of this paper are: (1) to derive a direct-revelation mechanism that induces truth telling and efficient allocation; (2) to study the agents' collusion behaviors under the direct-revelation mechanism. The findings indicate that when agents have the option to quit after contracting, it is optimal for the center to produce less than the first-best output level unless the costs for both divisions are at their lowest levels. The optimal amount of underproduction varies according to the demand condition. In addition, two sets of transfer functions, named as identical and nonidentical functions, are derived to induce truth-telling and yield optimal equilibrium output. The two sets of transfer functions are subject to collusion. However, the functions induce different collusion behaviors among agents, that is, the collusion sets for both functions are not common sets. This property enables us to eliminate any collusion between agents, particularly prior to their observation of private information.

This paper explores the role of transfer prices as coordinating mechanisms within a firm. Three cases (full information; pure adverse selection; adverse selection and moral hazard) are analyzed and compared to show how quantity and effort are affected as assumptions on observability are progrssively relaxed. The analysis of the second case, having two observable variables, identifies the necessary and sufficient condition under which “the local approach” can be applied. The third case is reinterpreted as transfer prices in a direct delegation setting. The main results are: First, the optimal transfer price is standard average cost plus. Second, it is not necessarily decreasing in quantity unlike the downward sloping demand function.

This paper models a decentralized firm under information asymmetry and effort disutility on the part of managers. We assume that managers choose efforts before observing some private information. However, after the effort choice managers receive private information on their cost parameters which they report to the headquarters. There exist many situations in which managers need to take efforts before obtaining private information; for example, the regular maintenance effort on the machine, the effort on RD 2) under certain demand conditions managers cannot receive any information rent benefit for their private information even if they have the option to renege on the contract after obtaining their private information.

The concentrations of greenhouse gases in the atmosphere have risen dramatically leading to the possibility of costly disruption from rapid climate change. This calls for greater attention and precautionary measures to be put in place, both globally and locally. Governments, business entities and consumers would be impacted by the extent to which such precautionary measures are incorporated in their decision making process. Business entities need to consider issues such as trading in carbon allowances (or permits), investment in low- CO2 emission technologies, counting the costs of carbon regularity compliance and passing on the increased cost of carbon regulation to consumers through higher prices. Such considerations require information for informed decision making. This paper reports on a qualitative research study undertaken to consider the impact of the Kyoto protocol mechanisms on the changing information paradigms of cost and managerial accounting. It is demonstrated that the information from strategic cost management systems will be particularly useful in this new carbon-economy, especially in evaluating the ‘whole-of-life’ costs of products and services in terms of carbon emissions. Similarly, the study discusses how strategic management accounting information would facilitate decisions on business policy, human resource management, marketing, supply chain management and finance strategies and the resultant evaluation of performance. Under various carbon emissions trading schemes proposed around the world (including the United States), organizations will need to implement carbon management schemes to meet carbon ration targets, earn revenue and reduce costs. Emission Trading Schemes will impact the accounting profession significantly; however, discussions on how to report these transactions are in the very formative stages. So far the accounting literature has focused on the reporting of current carbon assets and liabilities in the balance sheet and the timing effects of carbon releases in the income statement. However, there has been little or no discussion as to how to value and report the underlying non-current assets (and liabilities) that produce or use carbon allowances on the balance sheet. This paper summarizes the ongoing dialogue in this area.

In this article we examine the effects of committed costs (CC) on compensation and effort (production) decisions in a principal-agent (P-A) setting. In the case where moral hazard is present, the compensation and effort (production) decisions are independent of CC whenever P has constant absolute risk aversion. When P has decreasing absolute risk aversion, he demands as increased risk premium, therefore increases the spread of the compensation schedule, and induces A to increase effort (production) and vice versa. The optimal compensation scheme can be decomposed to conform to incentive schemes that are generally observed in practice. In particular, we decompose the optimal compensation scheme that depends on CC into two parts—a part that is based on cash flows and a part that is based on income (after allocating committed costs). In the case where effort is observable, CC does not effect the compensation scheme and effort decisions, when P has constant absolute risk aversion. In contrast to earlier studies that examine the owner-manager case, when P has decreasing absolute risk aversion, effort (production) could either increase or decrease. The presence of moral hazard affects the effort (production) decision differently than when risk-sharing considerations alone exist. The reduction in A's compensation induced by increased CC never exceeds the amount of CC.

The traditional view of quality treats it as an economic good which can be developed by incurring costs. Proponents of total quality management have rejected the traditional view and stress the complementary nature of cost and quality. Reconciles these two views as different manifestations of the same underlying phenomenon within the same strategic framework. This requires precise definitions of quality concepts such as conformance and performance quality. The organization first examines its current position within this framework. The definitions of quality help sharpen the formulation of strategic objectives and the framework helps in mapping out a policy for moving the firm from the current position to the desired position. In addition, also determines the operating systems of quality management by how quality is defined in the organization. In conjunction with the strategic direction, the operational management procedures facilitate the process of cost management.

The purpose of this paper is to study transfer pricing under asymmetric information and taxation. In accordance with the empirical evidence documented in accounting literature, this paper assumes that the firm uses one pricing system instead of two pricing systems—one for the tax purposes and the other for internal control. We provide a closed-form solution for the optimal mechanism under a dual-price system, which allows for the price credited to the manufacturing division to not equal the price charged to the distribution division. The equilibrium outcomes of the analysis suggest several interesting findings. Under a dual-price system, both divisional accounting profits at equilibrium change in the same direction with respect to the change of tax rate. However, the direct effect is larger than the indirect effect. Under a dual-price system, the division with the lower tax rate should be credited more profits than the division with the higher tax rate, but it would not fully bear all the profits.

In this paper, we examine the conflicts that arise when multiple users share a common facility. The conflicts could arise at three levels: (a) between the individual users and the division manager, (b) among the divisions (or different classes) that use the facility, and (c) between the divisions and the headquarters in the presence of private information. We analyze these conflicts and outline the role of cost allocation mechanisms and thereby account for congestion in each of these situations. The results of this paper demonstrate the usefulness of resolving these conflicts in an organization, and hence has direct managerial accounting implications.

This paper examines the pricing and incentives in an M/G/1 queue. A setting wherein, two division managers who share a common production facility and decide on the demand (usage) rates is developed. Stochastic choice hazard created by the unobservability of demand rates chosen by the division managers leads to incentive issues. Specifically, the headquarters needs to design incentive schemes such that the use of the common facility is optimal for the firm. When the incentive schemes are based on divisional performance measures, a charge based on usage ensures firm-wide efficient use of the common facility as a unique equilibrium. The charge is such that it encourages use of the facility when a division's expected benefit increases. Increases in the capacity of the common facility are not shared proportionately by the division managers, and therefore, the charge is not monotone in the capacity of the common facility.

This paper examines the role of cost application in the presence of delay and agency costs. Two risk neutral division managers share a common (production) facility and decide on (a) the demand (usage) rates, and (b) productive action. Each division manager causes costly delays at the common production facility for the other division manager. The expected delay depends on the demand rates chosen by the division managers. An M/G/1 queuing framework is used to characterize delay costs. The unobservability of demand rates leads to stochastic choice hazard, and the unobservability of productive actions leads to moral hazard problems. The headquarters designs incentive schemes such that the use of the common facility is optimal for the firm. We show that a franchise contract is necessary to implement the first-best solution (similar to Harris and Raviv 1979), but is not sufficient. Specifically, when the action aversion of one division manager is small, the use of a franchise contract leads to “greedy” behaviour by the that division manager. The cost application required is greater than the expected marginal cost of delay to preclude the greedy behavior and ensure a stable equilibrium.

PurposeRecently, performance measurement and management (PMM) has received increasing attention from both the academic and industrial environments. Companies that try to use PMM systems report experiencing implementation problems including goal incongruence. Based on a discussion of the state of the art of PMM, this paper aims to provide research guidelines for building a PMM system through a reference framework, and to identify major design challenges.Design/methodology/approachAt a macro level, the evolution of research is analyzed using citation and co‐citation analysis techniques. Further, the evolution of PMM systems in the last 20 years is traced. The feasibility and applicability of these frameworks/models are analyzed by considering five milestones that a performance measurement system should have. Based on this, an integrated framework is proposed as a basis for designing a cohesive PMM system.FindingsThe research on the subject is quite diverse. In fact, the research appears to be quite mature in terms of publications and citations, while PMM systems developed do not meet the PMM challenge faced in the current environment. The framework proposed for PMM system design integrates five systems: a performance system, a cost system, a capability evaluation system, a benchmarking system and a planning system. Integration among the five systems is to be viewed as the driver to address the PMM challenge.Research limitations/implicationsThe proposed framework is a starting point for PMM system design and it provides important guidelines for successful implementations of PMM initiatives for various types of companies in the current global business environment. However, further empirical studies are needed before the concepts described here can be assessed to ascertain its applicability.Practical implicationsThe paper provides a literature review of PMM research, discusses the mutual consistency of models and frameworks therein, and explores how the framework proposed might be implemented and improved, as well as the major challenges facing researchers. Practical implication and benefits of the proposed framework adoption are highlighted through an example.Originality/valueResearch in PMM has become increasingly important given the significant impact it can have on competitive strategy and operations of firms in the present global business environment. This paper demonstrates the need of an holistic approach to PMM, which requires an intensive and deep comprehension of the key activities in the company and their related drivers.

Balachandran and Schaefer (1979) show that if in the individual optimum class A dominates with a first come first serve queue, there could exist cases where in the public optimum class B dominates. We derive conditions under which providing a nonpreemptive priority allows both classes of users to use the facility and get a higher expected public net benefit than the first come first serve queue. The class that is provided the higher priority may or not be the class that dominates in the public optimum under the first come first serve queue. That means that introducing a priority scheme may switch the class that is given preference in the public optimum. It is shown that there exist situations where the class that is granted the higher priority for service could be levied a lower price than the class that is granted the lower priority. In the case where the users alone have perfect information on the value from using the facility, we derive conditions under which a non preemptive priority is superior to the first come first serve queue. The preemptive priority resume queue is not necessarily always superior to the first come first serve queue. We derive conditions under which the superiority of the preemptive priority resume queue over the first come first serve queue holds.

An approach to planning and controlling the utilization of a public service center is studied. In particular, three concerns of dealing with public service are addressed: classification, measurement of differential utility, and development of approaches to aid efficient operation of public service centers. For a prespecified service center utilization level, we show that it will not be optimal, in general, to discriminate in favor of a single type of user to the exclusion of others. The diversification among classes of users may also result under prespecification of the expected arrival rate in addition to the service utilization level. The optimal proportion of users from each type is obtained for both the policies and are compared with popularly appealing policies. In addition, an accounting and control system to implement the suggested policies is developed based on flexible budgets for the service center.

This paper studies the economic incentives of participative budgeting through the design of incentive schemes within the agency theory framework. In particular, a piecewise linear incentive scheme (PLIS), an optimal version of Weitzman's New Soviet Incentive Scheme (NSIS), is derived.

Maintenance agreements typically take effect when products have survived their warranty periods and begun to wear out. This paper proposes a stochastic model that both describes the breakdown phenomena that affect products and facilitates estimating repair costs during a maintenance agreement period. The model, thus, may be used for pricing decisions. The usefulness of the approach in estimating costs during an arbitrary accounting period is illustrated.

Growing competition from foreign companies, notably from Japan, has resulted in increased attention being paid to cost and quality issues in the US. The traditional view is that improvements in quality entail increased costs and are generally associated with reduced productivity. However, the more recent thought on the matter, espoused by Deming [1982] among others, treats quality and cost as complementary characteristics. We discuss here the target analysis approach which brings together cost and quality issues in a complementary manner. Target analysis consists of target cost and target quality components which are efficiently put together to achieve the overall strategic objectives of the firm. In contrast, traditional standard costing approach, while emphasizing cost control, fails to explicitly incorporate quality issues. Most of the manufacturing costs are committed during the design stage which occurs early in the life cycle of the product. This early commitment considerably constrains the ability to attain cost reductions during the manufacturing stage.

This paper aims to explore how contractors' in-house capability affects the strategic interaction between contracting parties and supply chain coordination. Specifically, this paper analyzes and compares the contractors' decisions in disclosing innovation and the parties' incentives of up-front investment for the benchmark scenario (the contractor lacks in-house capability) and the referred scenario (the contractor has the capability). We find that compared with the benchmark scenario, the contracting parties' bargaining position has altered in the referred scenario. More precisely, the contractor will have a larger bargaining power when he has in-house capability. In contrast to the single disclosure threshold obtained in the benchmark scenario, we find two thresholds in the referred scenario. Specifically, the contractor will organize an efficient coordinated supply chain only when innovations fall between the two thresholds when misappropriation is possible and the contractor has in-house capability. This paper can better explain why firms strategically outsource low-end products and produce high-end products themselves in practice. We find that the in-house capability has a positive effect on the contractor's incentive to innovate and an ambiguous effect on the subcontractor's incentive to invest in production process. Note particularly, we find that the contractor's in-house capability can enhance supply chain coordination.

New types of “measurements” are needed for both tradable and non-tradable assets in order for organisations to meet the challenges present at the corporate, national and international levels, especially in the areas of strategic decision-making and valuation. The focus of attention in recent studies has been on the valuation of intangibles. This paper argues that it is the combination of both tangible and intangible assets that provide an organisation a “capability” that ultimately drives its economic value. The paper then reports on a research study conducted to value organisational capabilities for a strategic military unit (SMU), and a reporting framework comprising a strategic balanced sheet and strategic income statement that was developed for this purpose. The valuation approach is basically to calculate the Capability Economic Value of Intangible and Tangible Assets (CEVITA TM ) of an organisation by leveraging its capability-enhancing expenses to economic values by using specific Expense Leveraged Value Indexes (ELVI TM ). 2 This paper illustrates a technique that will not only make these strategic valuations more relevant, but also show how to report these tangible and intangible asset combinations in an organisation’s financial statements. Even if generally accepted accounting principles cannot accommodate such value-creating information for external reporting, it is argued that, we need to develop them for internal reporting that is less constrained. © 2003 Elsevier Ltd. All rights reserved.

It is known that customers seeking service in a queuing system tend to overcrowd the facility when making their individual decisions based on a consideration of the benefits they derive from the service and the cost due to waiting at the system. To obtain an optimal utilization it is necessary to restrict entry by pricing. In this paper, the effect of applying the operating cost of the service center to its users is analyzed.

A mathematical model which describes the postal operations is discussed in this paper. This paper is confined to the problems which arise within a post office in mail sorting and classifying operations.

The problem of pricing for products under subcontracting is set in an agency theory format. Characteristics of decentralization, moral hazard and adverse selection are inherent in this problem. Optimal incentive compensation function and the transfer price are analyzed. The results are illustrated with an example of logarithm utility functions.

We develop and illustrate on optimizing procedure designed to assist taxpayers in obtaining the maximum benefit from the general provisions of the gift and estate tax structures late in life. The modeling and analysis in this paper are illustrative of the kind of analytical resarch which is possible in the tax area.

We discuss decision-making in queueing systems where individual customers have one or both of two options: (1) option to join or balk, (2) option to choose priority through a payment made on arrival. Each customer's objective is to maximize the expected net gain, defined as 0 if he balks, and as R - b - hE(W) if he joins, where R is his reward, b is his payment, h is his unit time waiting loss, and E(W) is his expected waiting time. The models considered are: (A) a GI/M/s/N queue with either FIFO or LIFO rule, and a balking option, (B) an M/M/s/N queue with a priority option, (C) an M/M/s/N queue with balking and priority options. Rational customers will limit their choice to a certain subset of actions, derived by considering the actions of other customers. When the subset consists of just one action we call it optimal. The analysis focuses on policies, that is, decision rules selecting an action as a function of arrival state (customers in system), R and h. Stable (self-sustaining) and superstable (optimal) policies are of special interest. A stable policy may not exist and it is not necessarily unique. In model A a superstable policy exists except, possibly, for N = ∞ with LIFO rule. For model B we give necessary and sufficient conditions that a policy is stable and induces either FIFO or LIFO service order. Similar results are derived in special cases of model C.

This pape: builds a mathematical programming model for the solution of the problem of gift: and eSlate taK planning. Given the assumptions of the model, the model is capable of revealing the best general ex ante pattern (both timing and amounts) of cash gift transfers.

Customers arriving for service at a service system are allowed to purchase their priorities. A pricing policy is said to be stable if no one customer can reduce his expected cost by deviating from it, provided that all other customers follow it. The policy considered specifies prices to be paid by arrivals based on the number in the system at the epoch of the arrival and a parameter, which is the number of customers in a group paying the same price. The necessary and sufficient conditions for this policy to be stable are derived. The optimal value of the parameter and the prices that will maximize the expected return to the service center operator while maintaining stability are discussed. The basic queueing model assumesPoisson arrivals, exponential service times and single server.

An M / GI /1 queueing model is considered, where the arrival rate to the facility is a continuous variable which depends, in the steady state, upon the average congestion at the facility. The population of customers arriving to the facility is partitioned into several classes dependent on the ratio of the value of time to the reward due to service but are served according to first-in-first-out rule. It is shown that under the privately optimal behavior of the individuals the facility will be dominated by the class with the highest net reward per value of time. The publicly optimal policy which maximizes the net reward due to service, after costs of waiting are deducted, is shown either to admit only a single class of customers to the facility, thus discriminating against the other classes or to be indifferent to the mix of classes. The class chosen for admission may not be the class which would have privately dominated the facility. When the expected delay experienced at the facility is fixed, a policy of tolls and rebates for the customers is obtained that will assure equal access to the facility for all customers irrespective of their classes. It is shown that the publicly optimal policy, under the condition of fixed aggregate arrival rate to the facility, is shown to be deversified. The optimal arrival rates desired by a single class are derived for two cases. When the proportions of arrivals from the classes are fixed, the aggregate arrival rate desired by a class is shown to be not greater than the equilibrium rate for the individuals from that class. Alternatively, when the aggregate arrival rate is fixed, conditions are obtained under which a class will prefer usage of the facility by several classes to its own domination.