Research Report: Intrafirm Resource Allocation with Asymmetric Information and Negative Externalities

We examine the intrafirm resource allocation problem with the following characteristics. The resource exhibits negative externalities, and the benefit of using the resource is known only to the user department and not to top management or other user departments. In addition, the consumption of the resource depends upon the choice of the mechanism for allocating the resource. For this problem, we derive a two-stage mechanism, and show that this proposed mechanism leads to optimal allocation.