Communication and Post-Decision Information

• DOI: 10.2307/2490788
• Publication Date: 2006-06-18T03:08:54Z
• Authors: Ronald A. Dye
• Keywords: 0502 economics and business; 05 social sciences

Managers are frequently requested to provide information about factors which influence their performance is subsequently used determine compensation. Since independent means of verifying the accuracy reported may not be available, and since managers governed by own self-interests, it might seem futile for owners request rely on such information. Nevertheless, there a wide variety circumstances under these requests made-management forecasts, standard-setting, bottom-up capital budgeting. Fulfilling evaluating consumes resources, so positive theory this communication between principals requires demonstration strict superiority management compensation schemes depend upon transmitted over those ignore In paper, I offer within context principal-agent paradigm. This paper closely related Holmstrom [1979]. characterizes optimal contracts principal his agent some publicly available signal other than output. shall specify sufficient conditions will privately observed only agent. leads two moral hazard problems in situation analyzed here: one regarding agent's selection effort