Examines a principal-agent model in which the principal can influence the extent to which the agent has superior private information on which the latter can base his action choice. Relevance of information furnished by management accounting systems in the assessment of employees; Conditions for the improvement of the agent's private pre-decision information system.

We investigate how nonfinancial performance measures (NPMs) can be used to encourage cooperation across divisions. The implementation of a project often requires joint efforts by multiple divisions. However, privately informed division managers sometimes find it in their self-interest to forgo profitable joint projects or to underinvest in relationship-specific assets. By treating the implementation of a joint project (e.g., a major process improvement or new product development) as an NPM, we show that paying the division managers discrete bonuses tied to this NPM improves the efficiency of project implementation and upfront investments. We derive how the optimal implementation bonus trades off distortions in ex post implementation and ex ante investments. In a dynamic version of the base model with learning-by-doing, we show that conditional on a project being implemented early on, the implementation bonus in subsequent periods will be higher than if the earlier project had not been implemented.

Explores a possible explanation for the observed use of bonus pool arrangements. Model illustrating optimal bonus arrangement; Use of non-contractible information.

Analyzes the design of an unconditional monitoring system in agencies. Value of monitoring; Characterization of monitoring system in terms of error associated with the obedient and disobedient actions; Optimal design of the costly unconditional monitoring system.

Previous research in management accounting and economics has noted the potential for complementarities between the firm’s performance measurement system and its other organizational design choices. We add to this literature by studying how the informativeness and incentive properties of a performance metric can be influenced by one particular organizational design choice—the size of the firm’s inventory buffers. We model a manufacturing setting in which an agent manages a workstation that processes intermediate units. As intermediate units arrive, they are stored in an inventory buffer until the agent can process them. The buffer can hold a maximum number of intermediate units—its buffer size. The agent is compensated on the basis of his workstation’s throughput. We characterize the conditions under which reducing the inventory buffer enhances/degrades the informativeness of the performance metric and, hence, mitigates/exacerbates the agent’s incentive problem.