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Title:Optimal contracting with predecision information: Communication problems under pure asymmetry of information
Author(s):Lee, Jong-Cheon
Doctoral Committee Chair(s):McKeown, James C.
Department / Program:Accountancy
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Business Administration, Accounting
Economics, Theory
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.
Issue Date:1989
Rights Information:Copyright 1989 Lee, Jong-Cheon
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI8916275
OCLC Identifier:(UMI)AAI8916275

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