Ranking Performance Measures in Multi-Task Agencies

The Accounting Review, Forthcoming

Posted: 31 Mar 2010

See all articles by Peter O. Christensen

Peter O. Christensen

Copenhagen Business School - Department of Finance

Florin Sabac

University of Alberta - Department of Accounting, Operations & Information Systems

Jie (Joyce) Tian

University of Alberta - Department of Accounting, Operations & Information Systems

Multiple version iconThere are 2 versions of this paper

Date Written: December 9, 2009

Abstract

We derive sufficient conditions for ranking performance evaluation systems in multi-task agency models (using both optimal and linear contracts) in terms of a second-order stochastic dominance (SSD) condition on the likelihood ratios. The SSD condition can be replaced by a variance-covariance matrix of likelihood ratios (VCM) condition when the utility function is square-root, the performance measures are normally distributed, and for LEN models. We identify existing results derived under the LEN assumptions that rely on the VCM condition and, thus, also hold for optimal contracts.

Keywords: Likelihood ratios, Multiple tasks, LEN

JEL Classification: M46

Suggested Citation

Christensen, Peter Ove and Sabac, Florin and Tian, Jie (Joyce), Ranking Performance Measures in Multi-Task Agencies (December 9, 2009). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1578815

Peter Ove Christensen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark
+45 6140 3237 (Phone)

Florin Sabac (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

Jie (Joyce) Tian

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

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