Problem
A. Discuss the trade-off between more competition among parts of an organization as a consequence of capital rationing and the perceived benefits of capital rationing.
B. What are possible reasons to apply capital rationing in highly heterogeneous organizations and highly homogeneous organizations?
C. Research on the effects of capital rationing is relatively scarce. Different streams of literature provide different results about the effects of competition on reporting behavior of managers. Explain the different streams of the literature.
D. Explain the assumptions of human behavior regarding the three different arguments in the literature on the possible effects of competition on the level of misreporting of divisional managers toward headquarters. Why may some of the assumptions not hold in a setting with multiple periods and investment "rounds"?