University of Illinois Urbana-Champaign

Optimal contracting with predecision information: Communication problems under pure asymmetry of information

Lee, Jong-Cheon

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https://hdl.handle.net/2142/20817

Description

Title
Optimal contracting with predecision information: Communication problems under pure asymmetry of information
Author(s)
Lee, Jong-Cheon
Issue Date
1989
Doctoral Committee Chair(s)
McKeown, James C.
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
  • Business Administration, Accounting
  • Economics, Theory
Language
eng
Abstract
  • The purpose of this dissertation is to extend the communication model to a situation where the agent searches for pre-decision information with effort in his own self-interest. We first introduce the agency model that involves the agent's information-searching behavior, the choice of information system, in the economic setting of pure asymmetric information where the principal cannot observe either the agent's information system or information-searching effort.
  • We investigate the value of communication in this economic setting with a different approach from the previous literature. The first result develops sufficient conditions for the agent's truthful communication of information system. We characterize the conditions for the valuable communication by separating the impacts on the principal's welfare of the communication itself and the agency problem related to communication.
  • We apply these results to the issues of management accounting. First, through numerical examples, we provide the economic rationale for the agent's participation (communication). Second, we also explain the simultaneous existence of different types of contracts within one firm.
  • Finally, we apply the framework of our analysis to the issues of the previous literature. We then explain why communication can be valuable and clarify an ambiguous interpretation of results in the previous communication literature.
Type of Resource
text
Permalink
http://hdl.handle.net/2142/20817
Copyright and License Information
Copyright 1989 Lee, Jong-Cheon

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