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Optimal Reporting Frequency in Agencies

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Authors
Kim, SonKu
Issue Date
2005
Publisher
Seoul Journal of Economics
Citation
Seoul Journal of Economics 18 (No. 1 2005): 21-44
Keywords
Dual agency model; Reporting frequency
Abstract
We consider a multi-period principal-agent model, in which an agent's actions influence the mean and variance of the firm's future income stream. We characterize the optimal compensation contract under an information system, which reports periodic incomes. We show that the contractual efficiency increases as the reporting frequency increases, and derive the principal's optimal choice of the reporting frequency. Our comparative static analysis predicts that when the income stream is more variable. it is optimal to increase the reporting frequency, whereas when the variation of the income stream is more sensitive to the agent's action, the optimal reporting frequency decreases. We also provide comparative static implications associated with the incentive power placed on the estimated variance of the reported income.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/1330
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.18(1) (Spring 2005)
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