Dynamic incentives and responsibility accounting: a comment

Dynamic performance measurement with intangible assets

“…Nevertheless, the presence of this strategy precludes any pure strategy equilibrium in which the same manager stays in the next period. An analogous result was obtained in previous papers by Christensen et al (2003) and Dutta and Reichelstein (2003). The following corollary summarizes this result.…”

“…Given the difficulty of distinguishing these soft investments from other operating expenditures, the principal assesses the resulting economic asset periodically by conducting 6 In a previous related paper, Rey and Salanie (1990) show that renegotiable two-period contracts can replicate the optimal outcomes of a full commitment long-term contract when transfers are not too limited, objectives are conflicting, and there is no relevant asymmetric information at contracting dates. 7 In examining the effects of commitment in a multi-period agency setting, this paper draws on results from earlier work by Reichelstein (1999a, b, 2003), Indjejikian and Nanda (1999), Christensen et al (2003), and Christensen et al (2002) as well as earlier results on contract renegotiation, e.g., , Fudenberg and Tirole (1990), Hermalin and Katz (1991), Demski and Frimor (1999). 8 Soft investments are also examined by Reichelstein (2003, 2005b) departing from previous literature in which intertemporal incentive provision is examined assuming a verifiable measure of investment is available (Rogerson 1997;Reichelstein 1997).…”

A contracting perspective on earnings quality

“…For simplicity, we also assume the agent commits to stay for two periods. However, the latter is not essential, since the principal could structure the payments such that the agent would choose to stay (see Christensen et al, 2003). 3 If complete contracts are possible, a commitment not to renegotiate is valuable ex ante to the principal, and a reputation mechanism may serve to enforce such a commitment.…”

“…The shortterm incentive models employed by Gibbons and Murphy (1992), Meyer (1995), Meyer et al (1996), Meyer and Vickers (1997), and Indjejikian and Nanda (1999) yield equivalent results (in terms of the induced actions and the principal's expected utility). Our model is similar to the LEN model with renegotiation in Christensen et al (2003), where a detailed discussion of these alternative models is provided. support an ex post change.…”

Divisional performance measurement and transfer pricing for intangible assets

“…Dutta and Reichelstein (2003) show that in a principal-agent problem in which the agent exerts unobservable effort and makes unverifiable investments, the agent anticipates a hold-up problem and underinvests if the principal can't commit ex-ante to a multi-period contract. Others, such as Indjejikian and Nanda (1999) and Christensen, Feltham, and Ş abak (2003), also model principal-agent problems in which the principal's inability to commit to long-term, full-commitment contracts results in economic loss.…”