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Variance Analysis Procedures as Motivational Devices

Author

Listed:
  • Stanley Baiman

    (Carnegie-Mellon University)

  • Joel S. Demski

    (Stanford University)

Abstract

Traditional standard cost variance analysis procedures are examined as motivational devices in a principal-agent model. The reexpressing of a cost realization into components (such as individual factor price and quantity variances) is shown to be useful if an incentive problem exists and if the separate components are differentially correlated with the agent's behavior. Similarly, the investigation of selected variances is shown to have desirable motivational effects. However, the optimal variance investigation policy is shown to be far more subtle than those found in single-person analyses.

Suggested Citation

  • Stanley Baiman & Joel S. Demski, 1980. "Variance Analysis Procedures as Motivational Devices," Management Science, INFORMS, vol. 26(8), pages 840-848, August.
    • Handle: RePEc:inm:ormnsc:v:26:y:1980:i:8:p:840-848
    DOI: 10.1287/mnsc.26.8.840
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    Citations

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    Cited by:

    1. Ralf Diedrich, 2017. "Economic Value Added: Entscheidungs- versus Anreiznützlichkeit [Economic Value Added: Decision versus Incentive Usefulness]," Schmalenbach Journal of Business Research, Springer, vol. 69(4), pages 381-403, November.
    2. Andersson, Fredrik & Skogh, Goran, 2003. "Quality, self-regulation, and competition: the case of insurance," Insurance: Mathematics and Economics, Elsevier, vol. 32(2), pages 267-280, April.
    3. Rajiv D. Banker & Srikant M. Datar & Mark J. Mazur, 1990. "Testing the optimality of a performance evaluation measure for a gainsharing contract," Contemporary Accounting Research, John Wiley & Sons, vol. 6(2), pages 809-824, March.
    4. Andrew Yim, 2009. "Efficient Committed Budget for Implementing Target Audit Probability for Many Inspectees," Management Science, INFORMS, vol. 55(12), pages 2000-2018, December.
    5. François Larmande & Jean-Pierre Ponssard, 2007. "The lack of controllability of EVA explains its decline a field study," Working Papers hal-00243065, HAL.
    6. Vetschera, Rudolf, 1993. "Zur Konsistenz von Abweichungsanalysen in hierarchischen Kennzahlensystemen," Discussion Papers, Series I 269, University of Konstanz, Department of Economics.
    7. Mukherji, Arijit & Nagarajan, Nandu J., 1995. "Moral hazard and contractibility in investment decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 413-430, May.

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