Intrafirm Coasian bargaining

There are some situations even within firms where one department will pay the costs of an activity and another will reap the benefits. I imagine this can lead to as inefficient outcomes as out in the world when people face externalities.

Take IT support, for example. Generally this is its own department, it is staffed and funded to provide support (and often the IT related capital equipment) for the rest of the company. In large part, the budget of this department is based upon the costs required to support the needs of the rest of the firm. This can be fairly straight forward: A helpdesk that fields N calls a day needs X operators to support the volume, etc.

But not all costs are directly passed through and who determines the level of support? Take vendor support contracts for example. The IT department often pays for that contract, but they have multiple options on the service level: Should they get 24x7 support with a 4 hour response time, or 8x5 support with next business day response time? The value of the different options are based on the section of the business being supported, but the people buying the contract don't have direct access to that information. How costly is it for a site to be down overnight? That depends not only on how much business that site does, but the hours of operation. Is 24x7 support really superior to 8x5 support when the site is only open 8am to 5pm Monday through Friday?

Questions like this might best be addressed in a Coasian light: In the support contract example, rather than have the IT department handle everything, let IT use their experience negotiating the contract but have the supported business unit pay for it. That pushes the cost of the support down to the group that actually gains value from its exercise.

And when the IT support staff has to pass on the bad news that users will be down for the next couple days because the support contract sucks, at least they can blame somebody else =)