REG510 Management Accounting: Incentive Mechanism (not offered)

• Topics

  Topics

  The focus is on performance measures and the relationship between performance and rewards. The case of linear rewards is addressed as well as the special case of stock prices as performance measures. Multiple tasks and multiple performance measures are discussed as well. Asymmetric information is then introduced by assuming that the agent has more information than the principal pre-contracting or post-contracting. Dynamic issues are the then discussed in the context of multi-period models. Here it is important to distinguish whether binding contracts may be written or renegotiations must be allowed. Finally contracting with multiple agents is addressed.

• Learning outcome

  After completing the course a student will:

  • Have an ability to model organizational behavior using microeconomic (principal-agent) theory
  • Understand performance measures and the relationship between performance and rewards
  • Have a good understanding of incentive contracting within firms
  • Understand the tradeoff between risk sharing and incentives
  • Have better understanding the theory of games with asymmetric information

• Assessment

  Term paper.

• Grading Scale

  Grading: Pass / fail.

• Literature

  Textbook: Christensen P. O. and Feltham G. A., "Economics of Accounting Volume II: Performance Evaluation" Springer Science, 2005