Contracting Theory and Accounting

Posted: 23 Oct 2001

See all articles by Richard A. Lambert

Richard A. Lambert

University of Pennsylvania - Accounting Department

Multiple version iconThere are 2 versions of this paper


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.

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

Suggested Citation

Lambert, Richard, Contracting Theory and Accounting. Available at SSRN:

Richard Lambert (Contact Author)

University of Pennsylvania - Accounting Department ( email )

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Philadelphia, PA 19104-6365
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