Early Versus Late Effort in Dynamic Agencies with Unverifiable Information


Autoria(s): Schöndube, Jens Robert
Data(s)

09/12/2008

09/12/2008

Resumo

In this paper we analyze a dynamic agency problem where contracting parties do not know the agent's future productivity at the beginning of the relationship. We consider a two-period model where both the agent and the principal observe the agent's second-period productivity at the end of the first period. This observation is assumed to be non-verifiable information. We compare long-term contracts with short-term contracts with respect to their suitability to motivate effort in both periods. On the one hand, short-term contracts allow for a better fine-tuning of second-period incentives as they can be aligned with the agent's second-period productivity. On the other hand, in short-term contracts first-period effort incentives might be distorted as contracts have to be sequentially optimal. Hence, the difference between long-term and short-term contracts is characterized by a trade-off between inducing effort in the first and in the second period. We analyze the determinants of this trade-off and demonstrate its implications for performance measurement and information system design.

Identificador

urn:nbn:de:0009-20-16513

http://www.business-research.org/2008/2/accounting/1651

Idioma(s)

eng

Direitos

authorcontract

Fonte

BuR - Business Research ; 01 , 02

Palavras-Chave #accounting #performance measurement