Markets have a remarkable capacity for producing efficient resource allocations when information about relative values is dispersed across economic agents. We explore the use of market mechanisms inside the firm to address a resource allocation problem, and compare the outcome with the first-...

Return on Investment (ROI) is widely regarded as a key measure of firm profitability. The accounting literature has long recognized that ROI will generally not reflect economic profitability, as determined by the internal rate of return (IRR) of a firm's investment projects. In particular, it...

Return on Investment (ROI) is widely regarded as a key measure of firm profitability. The accounting literature has long recognized that ROI will generally not reflect economic profitability, as determined by the internal rate of return (IRR) of a firm's investment projects. In particular, it...

Arguing that GAAP is ill suited for estimating the future profitability of intangibles, the accounting literature (e.g., Kaplan and Norton 1996, Lev 2001) has recently proposed alternative measurement models. These models view intangibles as comprised of a set of fundamental business activities,...

In competitive markets, prices offered by investors play a dual role: they must induce the firm to make truthful disclosures about its expected cash flows and they must also be efficient, i.e., equal the expected future cash flows to the buyer conditional on the disclosed information. We show...

This paper studies the optimal choice of cost standards (or cost targets) over time in an agency setting in which a worker is responsible for both implementing actions and acquiring skill/expertise that would enable him to improve his future performance with respect to those actions. We...

Managerial bonus payments are frequently determined by both objective and subjective indicators of managerial performance. By its very nature, subjective information is not verifiable for contracting purposes. The inclusion of such information in managerial bonus schemes therefore requires a...

We formulate and analyze a model of team structure and monitoring within a LEN agency framework. We incorporate three key instruments in the internal design of an organization involving team production: team size, monitoring activities, and incentive contracts. We show that the complex...

The reported cost of a product frequently contains historical cost components that reflect past investments in productive capacity. We examine a setting wherein a firm makes a sequence of overlapping capacity investments. Earlier research has identified particular accrual accounting...