We study the feasibility and desirability of integrating ethics with traditional principal-agent theory. After discussing common objections and potential benefits, we present a principal-agent model that incorporates ethics in a manner that maintains the essential features of the traditional LEN...

The analysis in this paper extends the single-agent/multi-task LEN model in Feltham/Xie (1994) to a multi-agent/multi-task context. A key feature of the paper is that we consider both full- and limited-commitment contracts. The former apply to settings in which the principal can specify the...

A perplexing yet persistent empirical finding is that individuals assess probabilities in words and in numbers nearly equivalently, and theorists have called for future research to search for factors that cause differences. This study uses an accounting context in which individuals are commonly...

In this paper, I examine issues relating to managers' ability to influence their performance evaluation. In contrast to conventional wisdom, I show that such influencing is not necessarily deleterious to shareholder welfare, despite the fact that it is aimed at maximizing the managers'...

We examine the realism of the assumption of self-interested opportunism in agency theory. We place subjects into manager/producer pairs and set parameters so that the producer extracts the highest share of residual earnings from the manager by setting the budget at zero (100% slack) and...

Because uncertainties around innovative technologies resolve over time, investments in such technologies are often made in stages so that organizations can use the knowledge gained from earlier stages to decide the next step. Previous studies usually assume that once some uncertainty is...

This paper investigates the relationship between a firm's cost stability and the frequency with which it acquires data in planning its operations. We first consider a benchmark model of a profit maximizing monopolist whose marginal costs follow an AR(1) process over time. The firm uses forecasts...

This paper creates a model of how management consultants aid clients in their cost reduction programs. It shows the impact of four distinct types of consultants. Brains consultants increase the number of potential options and improve the pool of possible cost reduction techniques. Procedure...

Efficient contracting involves reducing the losses in wealth due to bargaining impasses, time and effort spent in negotiating, delays in implementing profitable projects, and second-best agreements. Properties of accounting systems play a significant role when bargainers haggle over...

Banker and Hughes (1994) have demonstrated the economic sufficiency of activity-based unit costs for a firm's pricing and capacity decisions under uncertainty. This paper investigates the performance of the corresponding policy in a setting where the firm can adapt to changing demand conditions...