This section analyses the situation where the manufacturer have enough bargain power to enforce α < αd, so Nanotech opts out due to a violation of his participation constrain. Let introduce a new player in the game: the government.
Clearly, an investment in R&D will produce a multiplicative effect in the economy increasing the tax income in the long run. Therefore the government has an evident incentive to bring Nanotech back into the game.
Let assume the government guarantee a minimum repayment of xY < uY at time “2” to Nanotech. Therefore, his participation constraints changes accordingly; while the producer´s one remain unchanged (See Figure 3):
Nanotech β2[ puY + ( 1 − p ) max( dY α xY )] ≥ KN (3) Producer β [ puY ( 1 − α ) + ( 1 − p ) dY ( 1 − α )] ≥ KA (4) from (3) and (4):
d
x d
d p
pu + ( 1 − ) max( α , )) = α ≤ α (
A u
Y
K α
α ≥ β = −
− 1
1 .
Therefore, the joint investment will take place if α ∈ [ αd, αu], extending the interval where the game will take place.
KN KG
p
1-p
uY
0 1 2 t
max(dαY,X)
Figure 3: Time line with one-sided option
Figure 4: Revenues under government intervention depending on α
The revenues depending on α, changes accordingly for Nanotech.
Meanwhile
d
≥ x
α , there is no government intervention so the figure is exactly like the previous case. However if
d
< x
α , Nanotech will receive an incentive to participate. This is reflected in figure 4.
Finally some policy remarks are presented. The government´s incentive is paid at time 2. Clearly this is a counter cycle strategy. The government could contribute to increase employment in recession, with no payment at time “0”.
Moreover, if the government is credible, it is also possible to sell this option into the market.
5. Conclusion
This work proposed a model for joint-investments valuation. Firstly a cooperative project is analysed. If it is no possible for both players to participate, an extension is presented where a government incentive is included.
This framework could be used by policymakers to analysed incentives in the R&D market. One important feature of the present proposal is that do not require cash payment from the government at the moment the project start.
ٛ
ٛ ∆
∆
A N
- 1 0 0 % -1 0 0%
∆d ∆u
0 % 0%
G am e : Both participation constrains satisfie d
x>0
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ORIGIN AND DIFFUSION OF DIRECT COSTING:
EVOLUTION OR SCIENTIFIC REVOLUTION?
ALFREDO ROCAFORT NICOLAU
Accounting Department, Area of Financial Economics and Accounting, University of Barcelona, Diagonal 690-696, 08034-Barcelona The origin and evolution of direct costing (DC) approaches is a field rarely covered by cost accounting historians. This study does not only aim to systematize the historical evolution account which explains the appearance of DC, but also to show how this proposal, based on distinct accounting treatment of fixed costs and variable costs, adjusts more to the scheme of birth and development of a research programme as foreseen by I.
Lakatos, than that outlined on the origin of a scientific revolution implicit in the kuhnian theory of the paradigm.
1. Introduction
To face the problem of the origin and evolution of direct costing (DC), the scholars of this approach tend to adopt one of the following two perspectives:
a) The perspectives which concentrate on the internal reality of the proposal, that is to say the technical and doctrinal framework, for which the study of the gradual theoretical- practical birth and development of the DC approaches are asked of the historian.
b) The perspective which enlightens the external reality, apparently more epidermal and anecdotal but equally clarifying, which consists of describing the impact of the reactions that this approach produces between academics and professionals.
This investigation adopts an eclectic attitude, voluntarily moving between both points of view, with the intention of stressing in the first place the continuist and non ground-breaking character of the DC proposal. This first objective will lead to an attempt to place the family of DC sub-approaches within a united interpretation of the historical trajectory marked by Cost Accounting.
1.1. The NACA statements
In its bulletin of April, 1953, the NACA - National Association of Cost Accountants (at the present time, IMA - Institute of Management Accounting) stated a series of considerations on the long and large investigation carried out on DC by the scientific and professional community within the association.
These conclusions, found in the 23 Research Report, outlined the first version of the direct costing approach.
Following the cited report, the proposal to record in the books products on the unique base of variable costs was considered to be of special usefulness for managers and investors of a company. As far as fixed costs are concerned, a rigorous examination of their nature seemed to justify that they were deemed period charges and were not assigned to the products: a fixed cost is a cost which serves the company to be able to be in business, no to do business, following the conclusion of the controller J. Freeman (1961) at an association meeting.
Starting from the year 1953 a period of diffusion and analysis of the new accounting doctrine began in all kinds of forums and publications. A task of diffusion in which the same NACA bulletins played a key role, welcoming both defenders and detractors of the proposal.
The publication of two institutional reports which appeared in the same year (1961) should be mentioned in particular: one again coming from the NACA and the other from the ICMA (Institute of Cost and Management Accountants) emphasising the practical interest of the DC model.* One year later W. Wright (1962) signalled that the key to direct costing was in the separation of the variable costs linked to the production volume of the fixed costs, linked to the period. The first two alone form the value of the inventories, allowing the need to reclassify fixed costs according to the maintaining or not of a tight relationship with a determined product (direct fixed costs). These precisions outlined the second of the two versions of DC: the simple and the developed.
* The 37 NACA Research Report bore the significant title Current application of direct costing and contained well thought out affirmations on the model, given that the previous year two congresses had been celebrated on the subject. Compare the following reflection with previous others:
“Manufacturing costs of the period arise from supplying capacity to production and by maintaining this capacity at a certain point, independent to the level of intensity used. And given that the opportunity to use the capacity expires over time, the costs which support said capacity should also be considered to expire over time”.