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Contracting Theory and Accounting

Richard A. Lambert

University of Pennsylvania - Accounting Department

January 2001

JAE Rochester Conference April 2000

This paper reviews agency theory and its application to accounting issues. I discuss the formulation of models of incentive problems caused by moral hazard and adverse selection problems. I review theoretical research on the role of performance measures in compensation contracts, and I compare how information is aggregated for compensation purposes versus valuation purposes. I also review the literature on communication, including models where the revelation principle does not apply so that nontruthful reporting and earnings management can take place. The paper also discusses capital allocation within firms, including transfer pricing and cost allocation problems.

Number of Pages in PDF File: 135

JEL Classification: D82, D23, J33, M41, M46, L29

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Date posted: January 17, 2001  

Suggested Citation

Lambert, Richard A., Contracting Theory and Accounting (January 2001). JAE Rochester Conference April 2000. Available at SSRN: https://ssrn.com/abstract=235800 or http://dx.doi.org/10.2139/ssrn.235800

Contact Information

Richard Lambert (Contact Author)
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7782 (Phone)
215-573-5463 (Fax)

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References:  119
Citations:  128