In response to environmental concerns, multidivisional firms running internal markets often seek to have the associated internal (or transfer) prices incorporate their social cost of pollution. We develop a theoretical rationale and framework for this phenomenon. Modeling two vertically related...

In response to environmental concerns, multidivisional firms running internal markets often seek to have the associated internal (or transfer) prices incorporate their social cost of pollution. We first investigate this phenomenon. Modeling two vertically related subsidiaries located in...