Michael Lucas

Pricing decisions and the neoclassical theory of the firm

Abstract Many accountants seem to have accepted the existence of a ‘reality gap’ between management accounting’s conventional wisdom, based on the neoclassical economic theory of the firm and actual business practice. Whilst the former recommends the use of a decision relevant cost approach to pricing decisions, the latter is believed to be dominated by a full cost plus approach to pricing. In accepting the existence of a reality gap, accountants do not seem to have addressed the arguments of economists. These arguments seriously undermine the research findings of accountants that have given rise to the belief in such a gap. On the other hand, the empirical evidence supporting neoclassical price theory is not strong and much of the research that generated it is methodologically flawed. This paper evaluates the research supporting the accountants’ and economists’ respective positions and argues that neither is strongly supported by the conflicting empirical evidence. It then identifies the issues that need to be resolved by future research intended to assess whether empirical evidence supports neoclassical price theory or (full) cost plus pricing.

Approcci formali e informali al controllo negli innovation network. La relazione tra Leve del Controllo e Fattori della Fiducia

In recent years, there has been a significant increase in inter-organisational collaboration resulting in the emergence of hybrid organisational forms. This has led to recognition that management control can no longer be confined to the boundaries of a single organisation. Management control systems (MCS) must encompass networks of organisations. Inter-organisational relationships require both formal and informal controls. The latter are essentially mechanisms for encouraging self regulation. Significant among these mechanisms is trust. In inter-organisational collaborations high levels of trust can impact on the nature and the role of MCS. This paper elaborates a model of the link between the constituents of trust (trust factors) and the design of the MCS. We show how different trust factors (ability, benevolence, integrity) impact on different MCS’ approaches (belief, boundary, diagnostic and interactive systems) using Simon’s (1995) levers of control framework. The model demonstrates that an understanding of these relationships, especially in the innovation networks, can help managers employ the most suitable approach to management control in organisational network.

The Short Term Debt vs. Long Term Debt Puzzle: A Model for the Optimal Mix

This paper argues that the existing finance literature is inadequate with respect to its coverage of capital structure of small and medium sized enterprises (SMEs). In particular it is argued that the cost of equity (being both conceptually ill defined and empirically non quantifiable) is not applicable to the capital structure decisions for a large proportion of SMEs and the optimal capital structure depends only on the mix of short and long term debt. The paper then presents a model, developed by practitioners for optimising the debt mix and demonstrates its practical application using an Italian firm’s debt structure as a case study.