Advanced Search
MyIDEAS: Login to save this paper or follow this series

Selection among Mutually Exclusive Investments with Managerial Private Information and Moral Hazard

Contents:

Author Info

  • Rick Antle

    (Yale School of Management)

  • Peter Bogetoft

    (Royal Agricultural University)

  • Andrew W. Stark

    (Manchester Business School)

Abstract

We investigate the problem of selecting capital investments in an organizational context with asymmetric information. In a principal-agent model where a manager (agent) has superior information about the investment costs of n available mutually exclusive projects, we develop the owner´s (principal´s) optimal investment and compensation policies subject to the constraints created by the manager´s strategic behavior. The optimal policies take a simple form, and are defined by a handicapping scheme involving n cost targets, one for each of the possible projects. The optimal investment policy does not select the project with maximal, positive net present value (NPV). To limit the manager´s informational rents, projects with positive NPV may be forgone. Also, the project with maximal NPV is not always selected. To save on incentive costs, there will be tendency by to favour projects with less variation in costs. Furthermore, when the available projects are asymmetric ex ante, it may nevertheless be optimal to use an asymmetric policy.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1997-06.

as in new window
Length: 24 pages
Date of creation: Feb 1997
Date of revision:
Handle: RePEc:kud:kuieci:1997-06

Contact details of provider:
Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Phone: (0045) 35 32 30 54
Fax: +45 35 32 30 00
Email:
Web page: http://www.econ.ku.dk/cie/
More information through EDIRC

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Antle, Rick & Bogetoft, Peter & Stark, Andrew W., 2001. "Information systems, incentives and the timing of investments," Journal of Accounting and Public Policy, Elsevier, vol. 20(4-5), pages 267-294.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kud:kuieci:1997-06. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.