ID : 1031
Models ; Management science ; Management reports ; Management accounting ; Long term ; Contracts ; Bankruptcy ; Agency theory ; Models ; Management science ; Management reports ; Management accounting ; Long term ; Contracts ; Bankruptcy ; Agency theory
The role of the agent's bankruptcy constraints in multiperiod principal-agent models with asymmetric information is analyzed.  Conditions are provided under which commitment to a long-term contract involving a given number of rounds of investment improves upon repetition of that same number of identical single-period contracts.  Further, when the agent's reservation wage is sufficiently low the optimal contract is always long term.  Keeping records of a manager's history of reporting activity facilitates contracting, since optimal contracts may require a link between past reports and future investments over a duration of 2 or more periods.
Contract-based motivation for keeping records of a manager's reporting and budgeting history, Arya, Anil; Fellingham, John C; Young, Richard A, Management Science, 40:4, Apr 1994
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