The Transfer Pricing Problem

Section 1 introduces the material. Section 2 of this paper describes the transfer pricing problem and some solutions that have been proposed in the past. Section 3 offers a different solution and demonstrates that it supports an efficient allocation of resources. Section 4 briefly discusses some of the complications that arise in practice, analyzes methods governments have employed to address this problem, and argues that the solution corresponds to concepts of income division that governments have tried to employ in broader contexts.