IDEAS home Printed from https://ideas.repec.org/p/wop/ohstfi/_016.html
   My bibliography  Save this paper

The Interaction between Decision and Control Problems and the Value of Information

Author

Listed:
  • Anil Arya
  • Jonathan Glover
  • K. Sivaramakrishnan.

Abstract

We study a model of double moral hazard in which an information system is used in a decision problem (the principal can choose her own act based on the information) and a control problem (the principal can use the information to motivate the agent). An information system that provides more information is strictly preferred to an information system that provides less information if either of the problems is considered in isolation. However, less information, even though all information is public and contractible, can in fact be desirable from a profit maximization perspective because of an interaction between the two problems. Choosing an information system that provides less information serves as a substitute for commitment for the principal in our model. We also provide sufficient conditions for more information to be preferred, one of which is the complementarity of the agents act and the principal's act in the way they influence a joint measure of performance.

Suggested Citation

  • Anil Arya & Jonathan Glover & K. Sivaramakrishnan., "undated". "The Interaction between Decision and Control Problems and the Value of Information," Corporate Finance & Organizations _016, Ohio State University.
    • Handle: RePEc:wop:ohstfi:_016
    as

    Download full text from publisher

    File URL: http://www.cob.ohio-state.edu/~arya/ar.ps
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    2. Russell Cooper & Thomas W. Ross, 1985. "Product Warranties and Double Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 103-113, Spring.
    3. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    4. Demski, Js & Sappington, Dem, 1993. "Sourcing With Unverifiable Performance Information," Journal of Accounting Research, Wiley Blackwell, vol. 31(1), pages 1-20.
    5. Newman, P & Sansing, R, 1993. "Disclosure Policies With Multiple Users," Journal of Accounting Research, Wiley Blackwell, vol. 31(1), pages 92-112.
    6. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-574, September.
    7. Gigler, F, 1994. "Self-Enforcing Voluntary Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 32(2), pages 224-240.
    8. Myerson, Roger B, 1986. "Multistage Games with Communication," Econometrica, Econometric Society, vol. 54(2), pages 323-358, March.
    9. Joel S. Demski & David E.M. Sappington, 1991. "Resolving Double Moral Hazard Problems with Buyout Agreements," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 232-240, Summer.
    10. Baiman, S & Evans, Jh, 1983. "Pre-Decision Information And Participative Management Control-Systems," Journal of Accounting Research, Wiley Blackwell, vol. 21(2), pages 371-395.
    11. Baiman, S & Demski, Js, 1980. "Economically Optimal Performance Evaluation And Control-Systems," Journal of Accounting Research, Wiley Blackwell, vol. 18, pages 184-220.
    12. Jacques Crémer, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 275-295.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anil Arya & Jonathan Glover & Pierre Jinghong Liang, 2004. "Intertemporal aggregation and incentives," European Accounting Review, Taylor & Francis Journals, vol. 13(4), pages 643-657.
    2. Iny Hwang & Suresh Radhakrishnan & Lixin (Nancy) Su, 2006. "Vendor Certification and Appraisal: Implications for Supplier Quality," Management Science, INFORMS, vol. 52(10), pages 1472-1482, October.
    3. Julia Nafziger & Heiner Schumacher, 2013. "Information Management and Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 140-163, March.
    4. Anil Arya & John Fellingham & Doug Schroeder, 2000. "Accounting Information, Aggregation, and Discriminant Analysis," Management Science, INFORMS, vol. 46(6), pages 790-806, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sprinkle, Geoffrey B., 2003. "Perspectives on experimental research in managerial accounting," Accounting, Organizations and Society, Elsevier, vol. 28(2-3), pages 287-318.
    2. Pei†Cheng Liao & Suresh Radhakrishnan, 2013. "A Commitment†Based Explanation for Outsourcing Multiple Tasks," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 1063-1081, September.
    3. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    4. O'Brien, Daniel P., 2017. "All-units discounts and double moral hazard," Journal of Economic Theory, Elsevier, vol. 170(C), pages 1-28.
    5. Shin, Dongsoo, 2015. "Incentives and management styles," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 22-31.
    6. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    7. Sappington, David E M, 1994. "Designing Optional No-Fault Insurance Policies for Health Care Systems," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 113-142, Spring.
    8. Helmut Bester & Daniel Krähmer, 2008. "Delegation and incentives," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 664-682, September.
    9. Tsoulouhas, Theofanis, 1999. "Do tournaments solve the two-sided moral hazard problem?," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 275-294, November.
    10. Dur, Robert & Non, Arjan & Roelfsema, Hein, 2010. "Reciprocity and incentive pay in the workplace," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 676-686, August.
    11. Corbett, Charles J. & DeCroix, Gregory A. & Ha, Albert Y., 2005. "Optimal shared-savings contracts in supply chains: Linear contracts and double moral hazard," European Journal of Operational Research, Elsevier, vol. 163(3), pages 653-667, June.
    12. Steiner, Bodo E., 2009. "The Extent and Nature of Contracting in the Wine Supply-Chain When Moral Hazard is Present," Staff Paper Series 154127, University of Alberta, Department of Resource Economics and Environmental Sociology.
    13. Monteiro, Diogo Souza, 2022. "Contract breaching in agricultural markets: An experiment on double moral hazard," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321179, Agricultural Economics Society - AES.
    14. Udo Schneider, 2004. "Asymmetric Information and the Demand for Health Care – the Case of Double Moral Hazard," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 124(2), pages 233-256.
    15. Tom McKenzie & Dirk Sliwka, 2011. "Universities as Stakeholders in their Students' Careers: On the Benefits of Graduate Taxes to Finance Higher Education," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 726-742, December.
    16. Giorgio Coricelli & Luigi Luini, 1999. "Double Moral Hazard: an Experiment on Warranties," CEEL Working Papers 9901, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    17. Kim, Son Ku & Wang, Susheng, 1998. "Linear Contracts and the Double Moral-Hazard," Journal of Economic Theory, Elsevier, vol. 82(2), pages 342-378, October.
    18. Anyangah, Joshua O., 2017. "Creditor rights protection, tort claims and credit," International Review of Law and Economics, Elsevier, vol. 52(C), pages 29-43.
    19. Tinglong Dai & Kinshuk Jerath, 2019. "Salesforce Contracting Under Uncertain Demand and Supply: Double Moral Hazard and Optimality of Smooth Contracts," Marketing Science, INFORMS, vol. 38(5), pages 852-870, September.
    20. Dutta, Mousumi & Husain, Zakir, 2012. "Use of hospital services and socio-economic status in urban India: Does health insurance ensure equitable outcomes?," MPRA Paper 40055, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:ohstfi:_016. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/dfohsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.