digit analysis can be used to detect allocations affected by
managerial interventions. We are unaware of any study applying the Benford test to
internal capital markets, while this approach appears very useful in this context. It is
commonly used in the auditing, financial accounting, and fraud detection literature.
JEL classification: C16, G21, G31.
Keywords: Internalcapitalallocation; the Benford law; managerial
The allocation of scarce resources to the subunits and divisions represents a cru-
cial process in conglomerate firms. The
Allocating risk properly to subunits is crucial for performance evaluation and internal capital allocation of portfolios held by banks, insurance companies, investment funds and other entities subject to financial risk. We show that by using coherent measures of risk it is impossible to allocate risk satisfying simultaneously the natural game theoretical requirements of Core Compatibility and Strong Monotonicity. To obtain the result we characterize the Shapley value on the class of totally balanced games and also on the class of exact games as being the only risk allocation method satisfying Strong Monotonicity, Equal Treatment Property and Efficiency. Moreover, we clarify and interpret the related game theoretical requirements that have appeared in the literature so far and have been applied to risk allocation.