Ranking Performance Measures in Multi-Task Agencies

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: Suggested Citation

Christensen, Peter Ove and Sabac, Florin and Tian, Jie (Joyce), Ranking Performance Measures in Multi-Task Agencies (December 1, 2009). The Accounting Review, 85(5), September 2010, pp 1545-1575, University of Alberta School of Business Research Paper No. 2013-1091, Available at SSRN: https://ssrn.com/abstract=2283318