Journal Article Resource Allocation in a Non-convex Economy Get access James C. Moore, James C. Moore Purdue University Search for other works by this author on: Oxford Academic Google Scholar Andrew B. Whinston, Andrew B. Whinston Purdue University Search for other works by this author on: Oxford Academic Google Scholar Joseph S. Wu Joseph S. Wu Purdue University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 39, Issue 3, July 1972, Pages 303–323, https://doi.org/10.2307/2296361 Published: 01 July 1972 Article history Received: 01 April 1971 Revision received: 01 November 1971 Published: 01 July 1972

The article discusses forecast evaluation in accounting. Accounting data are often used in the development of forecasts and accountants are often called on to make forecasts. Development of a variable overhead rate per direct labor hour may, for example, be viewed as development of a forecast--whether it is used in a standard cost system, in a budget, or in a product mix decision. Similarly, establishment of a depreciation policy requires a forecast of service life. Furthermore, the ability to forecast some specific outcome has been offered as a criterion for selection among accounting alternatives. But, whatever its ultimate purpose, development of a forecast constitutes a decision--a conscious choice among alternatives. The concern in this paper is limited to this decision aspect of forecasting. In particular, in the first section it is demonstrated that selection among forecast alternatives is a subset of the accountant's general problem of selection among information alternatives. Following this, characterization is done of prevailing methods of selecting among forecast alternatives as a simplification of the basic information choice problem. The paper then concludes with two illustrative simulations.

The article is a reply to a comment by the researchers Michael L. Moore and Stephen Buzby on the author's work, published in the July 1, 1972 issue of the journal "The Accounting Review." According to the authors, Moore and Buzby have made several comments on the index of disclosure, which was used in the authors' research to measure the quality of disclosure in annual reports. To test the effectiveness of their index, the authors compared their results with those of the twenty-sixth annual survey by "Financial World." Moore and Buzby noted that the test is somewhat misleading because "Financial World" only punishes the list of award winning companies and the failure of some of the companies in the bottom 23 percent of our sample to win an award may only mean that they were not among the reports surveyed. As mentioned in the authors' article, only 9 of the bottom 23 percent of their sample companies received merit certificates from "Financial World." One of the comments by Moore and Buzby deals with the index's inability to discriminate. This is not true since variable weights were used in scoring annual reports.