The value of extended delegation in dynamic agency

Schöndube-Pirchegger, Barbara; Schöndube, Jens Robert

doi:10.1016/j.mar.2012.07.001

Cited by 5 publications

(3 citation statements)

References 19 publications

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“…Finally, while we show in this paper that the late accounting system under certain circumstances can be used as a commitment to low incentives, Schöndube-Pirchegger and Schöndube (2012) show that delegation of decision rights may serve as a commitment to higher powered incentives.…”

Section: Introductionmentioning

confidence: 72%

Relevance versus reliability of accounting information with unlimited and limited commitment

Schöndube-Pirchegger

Schöndube

2017

Bus Res

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We consider a two-period LEN-type agency problem. The principal needs to implement one out of two accounting systems. One emphasizes relevance, the other reliability. Both systems produce identical inter-temporally correlated signals. The relevant system reports an accounting signal in the period in which it is produced. The reliable system reports a more precise signal, but with a one period delay. Accounting information is contractible only if it is reported within the two-period horizon of the game. Accordingly, accounting information produced in the second period becomes uncontractible with the reliable system in place. Non-accounting information needs to be used for contracting to provide any second period incentives at all. We derive optimal compensation contracts in a full and in a limited commitment setting. With full commitment, the reliable system trades-off more precise first and less precise second-period contractible information, as compared to the relevant system. If the reduction of noise in the accounting signals is strong and the distortion in the non-accounting measure is weak, the reliable system is preferred. With limited commitment we identify a similar trade-off if intertemporal correlation of the signals is negative. If it is positive, this tradeoff might reverse: The reliable system is possibly preferred if noise reduction is small and the non-accounting measure is heavily distorted. Noisiness in performanceWe acknowledge helpful comments from Joachim Gassen (the editor), two anonymous reviewers,

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Section: Introductionmentioning

confidence: 72%

Relevance versus reliability of accounting information with unlimited and limited commitment

Schöndube-Pirchegger

Schöndube

2017

Bus Res

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“…2012, Corbett and Groote 2000, Corbett et al. 2004, Davis and Hyndman 2018, Ha 2001, Schöndube‐Pirchegger and Schöndube 2012). Chen (2003) provides an excellent survey of this literature.…”

Section: Literature Reviewmentioning

confidence: 99%

Short‐term vs. Long‐term Contracting: Empirical Assessment of the Ratchet Effect in Supply Chain Interaction

Johnsen

Sadrieh

Voigt

2021

Production and Operations Management

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In laboratory experiments, we compare the performance of short‐term and long‐term contracts in a two‐period supplier–buyer dyad with asymmetric cost information. We find that buyers tend to reject offers if the payoff inequality increases from one period to the next. We coin this dynamic form of inequity aversion as “ratcheting aversion.” We show that under short‐term contracting, the buyer's ratcheting aversion limits the supplier's leeway to exploit information revelation in earlier periods because suppliers fear contract rejections in later periods. As a result, the suppliers' empirical benefit of offering long‐term contracts over short‐term contracts is significantly larger than theory predicts. Furthermore, long‐term contracts enable supply chain partners to achieve less volatile supply chain performance than short‐term contracts because the buyers' ratcheting aversion leads to more contract rejections under short‐term contracting. While normative theory predicts that suppliers should include all future informational rents of the buyers in the first‐period offer, thereby creating large payoff differences between periods, we show that it can be behaviorally optimal for the supplier to make offers that lead to more equitable payoffs between periods.

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“…For example, in Melumad and Reichelstein () costly communication can render delegation beneficial. Melumad and Mookherjee () and Schöndube‐Pirchegger and Schöndube () show that the delegation of decision rights may act as a commitment device. In this paper, neither a communication nor a commitment problem is present.…”

Section: Introductionmentioning

confidence: 99%

Optimal delegation choices in the presence of an incongruent performance measure and double moral hazard

Schöndube-Pirchegger

Schöndube

2019

Manage Decis Econ

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An owner-manager can delegate two tasks to an agent. A time constraint prevents him from completing both tasks at first-best levels. He can (a) perform both tasks personally to the extent possible, (b) delegate one task to an agent, or (c) delegate both tasks. Agency costs arise from a congruity problem, a double moral hazard problem, and a risk and incentive trade-off. Delegation becomes more favorable the stronger the time constraint. Once delegation is preferred, the optimal extent of delegation depends on the relation of sensitivity to productivity ratios in both tasks. Agency costs not necessarily increase in delegation level.

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The value of extended delegation in dynamic agency

Cited by 5 publications

References 19 publications

Relevance versus reliability of accounting information with unlimited and limited commitment

Relevance versus reliability of accounting information with unlimited and limited commitment

Short‐term vs. Long‐term Contracting: Empirical Assessment of the Ratchet Effect in Supply Chain Interaction

Optimal delegation choices in the presence of an incongruent performance measure and double moral hazard

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