Analysis Of Transfer Pricing Mechanisms Under Asymmetric Information

Now the economic system reform is in the crucial moment,whether we can set up the modern enterprise system is directly related to the success of the economic reform. But in process of approaching the modern enterprise system, an evident and urgent problem is that there exist a superficial understanding to the internal transfer pricing mechanism and the misuse aroused. In the decentralized management system, when we view the enterprise as a whole, there exists information asymmetry in the business, and the transfer pricing system works as a information transmission mechanism, so the error in the transfer pricing will necessarily lead to erroneous in the information transmission process and cause some problems in the internal management of the enterprise which is specified as that divisions make false report about their private information and the inconsistency lies between the target of the business as a whole and the divisions. So to enhance the economic benefit of the business as a whole, it's important to research the economic basis of the transfer pricing mechanism in the decentralization surroundings, formulate and apply the rational transfer pricing mechanism, ascertain the optimal transfer pricing to reduce the efficiency wastage caused by the information asymmetry and identify appropriate harmonization and constraint mechanism,which is a key link in the business system reform and is of practical significant. In the first part of the paper the model of the transfer pricing mechanism under information symmetry is presented as well as the efficiency performance when the private information is considered, thus the paper made a numerical demonstration to the efficiency wastage caused by the ignorance of private information. Then the paper investigated the transfer pricing mechanism under information asymmetry, ascertain the condition under which optimal transfer pricing can be realized, the efficiency wastage caused by the information asymmetry, at the same time efficiency performance of the different transfer pricing mechanism was also compared. Up to now, theoreticians in our nation simply have a superficial research in the internal transfer pricing mechanism which is constraint to the usage of marginal analyses in the economics as the basic method to get the optimal transfer pricing under information symmetry. Through the usage of model, the efficiency wastage caused by the information asymmetry was identified. In my analyses the private information was also introduced into the premise, then the research constraint was broke through and the original investigation of the transfer pricing was brought to completion. Thus on the basis of the result, the paper made some suggestions to the formulation of the transfer pricing, I wish my suggestion can make contribution to our economic system reform.