This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Compensation and Auditing with Correlated Information

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
M. Martin Boyer ()
Patrick González

Additional information is available for the following registered author(s):

Abstract

An extensive academic literature exists on the optimal compensation of top executives. A less-developed literature pertains to the optimal compensation of middle management personnel. The goal of this paper is to address that concern. The setup we use is that of a firm s president (the Principal) who must distribute year end bonuses to plant managers (the Agents) who possess private information concerning production costs, information that is correlated across managers. The principal wants to design a contract that uses this correlated information. We find that the fully specified contract may be too complex for corporations to implement. This may explain why firms resort to simple schemes such as pay scales and subjective-based compensation. It gives also a theoretical bias for the existence of hierarchies in an organization.

La rémunération des hauts dirigeants d entreprise a été grandement documentée. La rémunération des gestionnaires au milieu de la pyramide organisationnelle a été moins documenté toutefois. Le but de ce papier est d adresser cette lacune. Nous utilisons une approche classique de principal-multiagent où le principal doit distribuer des boni de fin d année à ses gestionnaires qui possèdent une information privilégiée en ce qui a trait aux coûts de production, une information qui est corrélée d un gestionnaire à l autre. Le principal veut structurer le contrat de manière à utiliser optimalement cette information corrélée. Nos résultats montrent qu un contrat complet peut être trop complexe à implémenter. Ceci peut expliquer pourquoi les corporations se basent très souvent sur de simple mécanismes de rémunération telles les échelles salariales. Notre étude offre également une explication pour l existence de hiérarchies dans les organisations.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cirano.qc.ca/pdf/publication/2001s-59.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by CIRANO in its series CIRANO Working Papers with number 2001s-59.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 01 Nov 2001
Date of revision:
Handle: RePEc:cir:cirwor:2001s-59

Contact details of provider:
Postal: 2020 rue University, 25e �tage, Montr�al, Qu�c, H3A 2A5
Phone: (514) 985-4000
Fax: (514) 985-4039
Email:
Web page: http://www.cirano.qc.ca/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Webmaster).

Related research
Keywords: Correlated Information; Auditing; Contract Theory; Complexity; Information corrélée; Audit; Théorie des contrats; Complexité;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. M. Boyer & Patrick González, 2004. "Optimal audit policies with correlated types," Economic Theory, Springer, vol. 24(2), pages 325-334, August. [Downloadable!] (restricted)
    Other versions:
  2. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? All full texts are decentralized with the publishers, none reside on this server, thus making it possible to offer this service for free to all parties.

This page was last updated on 2009-11-20.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.