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The Value of Historical Cost Reporting in a Private Information Setting

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Listed:
  • Anil Arya
  • John C. Fellingham
  • Richard A. Young

Abstract

This teaching note illustrates how reporting historical data, even when it is unverifiable, can be useful in improving productive efficiency. Historical cost accounting is evaluated in a simple multi-person setting with private information. Because the source of contracting frictions is limited liability rather than risk aversion, the analysis is easily accessible to students. The instructor may choose the degree to which he or she emphasizes the historical cost interpretation, the role of commitment, and optimal contracts. In the event that a more rigorous analysis is desired, an Appendix is included which formulates a linear program that can be used to solve for optimal contracts.

Suggested Citation

  • Anil Arya & John C. Fellingham & Richard A. Young, "undated". "The Value of Historical Cost Reporting in a Private Information Setting," Corporate Finance & Organizations _009, Ohio State University.
    • Handle: RePEc:wop:ohstfi:_009
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    File URL: http://www.cob.ohio-state.edu/dept/acctmis/fac/young/work/hiscost.doc
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