Renegotiation and Relative Performance Evaluation: Why an Informative Signal may be Useless
AbstractAlthough Holmstrom’s informativeness criterion provides a theoretical foundation for the controllability principle and interfirm relative performance evaluation, empirical and field studies provide only weak evidence on such practices. This paper refines the traditional informativeness criterion by abandoning the conventional full-commitment assumption. With the possibility of renegotiation, a signal’s usefulness in incentive contracting depends on its information quality, not simply on whether the signal is informative. This paper derives conditions for determining when a signal is useless and when it is useful. In particular, these conditions will be met when the signal’s information quality is either sufficiently poor or sufficiently rich. (JEL C72, D82).
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27855.
Date of creation: 28 Oct 2000
Date of revision:
Publication status: Published in Review of Accounting Studies 1.6(2001): pp. 77-108
informativeness; monitoring; renegotiation; principal-agent model;
Find related papers by JEL classification:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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.:
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