The interaction between decision and control problems and the value of information

Article Abstract:

A principal-agent information system model of double moral hazard was constructed to describe the relationship between decision and control problems. In this framework, the principal and the agent both provide beneficial inputs, with the principal acting not just as a designer of contract. Moreover, the principal emulates the agent in that it also cannot pledge to a preset effort level, which makes the model a double moral hazard. The principal views its action choice as a decision problem and the agent's action a control problem. In isolation, both problems can lead to an information system that generates more public information. Nevertheless, an information system offering less public information can actually be advantageous, owing to the dynamics between the problems, because it can function as a substitute for the principal's commitment.

Decision-making, Decision making, Problem solving, Information systems

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Verification of historical cost reports

Article Abstract:

A stylized model where the historical cost reports of a division manager are verified by a second agent is presented. However, verification can be problematic because it offers the verifier and the party whose report is being verified with an opportunity for collusion. In a one-period setting, the difficulty of tacit collusion between the verifier and the division manager is so harsh that no mechanism can be designed under which there is a unique equilibrium that assigns the verifier to exercise anything except the minimal level of care. A solution to this tacit collusion problem can be found by expanding the contractual relationship to two periods. The optimal collusion-preventing long-term contract relies on history-contingent production decisions.

Prevention, Fraud, Cost accounting

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Interacting supply chain distortions: the pricing of internal transfers and external procurement

Article Abstract:

How distortions in the supply chain caused by transfer pricing affect firms that depend on external procurement is examined. Decentralization can prompt suppliers to reduce prices to ward off costly internal transfers that adversely affect demand.

United States, General services, Science & research, Decentralized Organization, Venture Analysis, Purchasing, Economic aspects, Business enterprises, Logistics, Business logistics, Transfer pricing, Decentralization (Management), Report

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