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Optimal Cost Targets and Incentives for Acquiring Expertise

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Listed:
  • Stanley Baiman

    (University of Pennsylvania)

  • Madhav V. Rajan

    (University of Pennsylvania)

Abstract

This paper studies the optimal choice of cost standards (or cost targets) over time in an agency setting in which a worker is responsible for both implementing actions and acquiring skill/expertise that would enable him to improve his future performance with respect to those actions. We characterize the effect of the decision horizon and the observability of the worker's acquired expertise on both the optimal path of cost standards and the worker's investments in expertise. In addition, we characterize the trade-off between motivating the worker's investment in expertise and motivating his efficient use of the expertise.

Suggested Citation

  • Stanley Baiman & Madhav V. Rajan, 1998. "Optimal Cost Targets and Incentives for Acquiring Expertise," Review of Accounting Studies, Springer, vol. 3(3), pages 231-259, September.
    • Handle: RePEc:spr:reaccs:v:3:y:1998:i:3:d:10.1023_a:1009625322822
    DOI: 10.1023/A:1009625322822
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    References listed on IDEAS

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    4. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
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    7. Kanodia, C, 1993. "Participative Budgets As Coordination And Motivational Devices," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 31(2), pages 172-189.
    8. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
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