Institutional perspectives on cost allocations: integration and extension

The debate on cost allocations in the management accounting literature has been dominated by a largely rationalistic perspective primarily informed by economic theories. However, there is growing evidence of institutional factors influencing cost allocation practices in organizations. This paper draws on neo-institutional sociology (NIS) and attempts to integrate prior research evidence of the institutional influence on cost allocation practices into an analytical framework. The core of our argument hinges on the observation that most cost allocations generate some degree of ambiguity. We argue that the implementation of various cost allocation techniques (in terms of their coupling to operating control) reflects differences in management of such ambiguity, but that this is conditioned by the patterns in which cost allocation techniques diffuse across organizations. We also address some pertinent criticisms of the NIS literature by discussing how certain intra-organizational factors and aspects of the organization's technical environment might interact with external institutional pressures in the implementation of cost allocation techniques. We advance six research propositions reflecting how such external institutional pressures and interaction effects influence the coupling of cost allocation practices to operating control.