The Text Presents What It Calls a General Transfer Pricing

question 139

Essay

The text presents what it calls a general transfer pricing rule that can be used to help set an appropriate transfer price. The following questions pertain to this general rule.
Required:
1. Present, in equation form, the general transfer pricing rule presented in the chapter. Briefly describe the elements of the model.
2. In what sense is the model presented in the chapter a general transfer pricing rule?
3. Evaluate the general transfer pricing rule in light of the objectives for transfer pricing that are presented in the chapter.
4. What are some of the major implementation issues associated with applying the general transfer pricing rule in practice?

---

Definitions:

Anchoring Effect

A cognitive bias where an individual's decisions or estimates are influenced by an initial piece of information (anchor).

Cognitive Bias

A systematic pattern of deviation from norm or rationality in judgment, where individuals create their own "subjective reality" from their perception.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Satisficing

A decision-making strategy that entails searching through the available alternatives until an acceptability threshold is met, rather than seeking the optimal solution.