In problems 9 and 10 above you have encountered numerical examples where private information in…

In problems 9 and 10 above you have encountered numerical examples where private information in the hands of a manager is or is not in the best interests of the firm. Sketch two corresponding institutional settings, one where the firm wants the manager to be informed and one where it does not. Is it possible a firm might want to exclude some information from the accounting library for strategic or control purposes?

(problems 9: Return to Example 17.5. Suppose no information is available, and the firm desires supply of input H. Determine an optimal pay-forperformance arrangement, and contrast it with the case where the information is privately obtained by the manager but not communicated. How much would the firm pay for the manager to observe the environment before acting? Does this amount depend on whether communication is feasible? Why?

((Example 17.5: Consider the setting in Table 17.6. Set cH = 3, 000 and the manager’s risk aversion measure at ρ = .0001 (along with the usual normalization of cL = M = 0). The information arrives just before the manager acts. Notice we have π(g) = π(b) = .50. Moreover, under y = b inputs L and H are equally productive, while input H is more productive under y = g. This suggests an input policy of H in the good (g) environment and L in the bad (b). Absent any contracting frictions, this would lead to an expected cost to the firm of .50cH + .50cL = 1,500. Now suppose this critical information is public. The optimal contract, denoted I ∗ xy in Table 17.6, leads to a risk premium of 28.42 (and overall expected cost to the firm of 1,528.42).10 Notice incentives are applied only in the good environment, where input H is desired. Contrast this with the case where the information is available (to guide the input choice), but is not used in the payment arrangement. This is contract I ∗ x which, due to its information diet, needlessly maintains strong incentives in the bad environment.

Conversely, suppose the manager privately observes the information. Not asking him to self-report results in the noted I ∗ x setting. Contract I ∗ xy (where we interpret the public information as the self-reported variable) implements the desired input and candid self-reporting by the manager. Relative to the public information story we again see less aggressive use of the information. We even see incentives are active in the bad environment, as the privately informed manager must be deterred from opportunistic reporting.11 Finally, and in sharp contrast, placing the private information in the hands of the firm returns us to the public information setting. You can readily verify that if the firm self-reports its private observation, in time for the manager to act thereon, it will gladly self-report with candor when the I ∗ xy contract is in place.

(Problem 10: Return to Table 17.7, and assume the manager is as specified in problem 4 above. Input H is desired, regardless of any information. Initially suppose no information is available, either publicly or privately. Determine and interpret an optimal pay-for-performance arrangement. (Assume the manager can post a large performance bond.) Next, suppose the g or b environment is privately revealed to the manager before acting; this revelation cannot be communicated to the firm. Determine and interpret an optimal pay-for-performance arrangement. How much would the firm pay to keep the manager from observing this information? Does the manager benefit from having the private information? Why?


Calculate the price
Make an order in advance and get the best price
Pages (550 words)
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Online Academic Experts
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Received before the deadline. Great job!
Customer 453027, January 15th, 2022
I just need some minor alterations. Thanks.
Customer 452547, February 10th, 2021
Professions and Applied Sciences
Thanks. This helps a lot. Was a bit late but some cushion was given.
Customer 453015, February 10th, 2022
Criminal Justice
The paper was not accused of plagiarism and was written very well. I will let you know the grade once it is graded. Thank you
Customer 452671, April 26th, 2021
Business Studies
Thank you so much! I had to take my dog to the ER and had no time for the assignment. I really appreciate your help! I can't thank you enough! I really appreciate the work and integrity put into it. Thank you for taking it seriously and not bullshiting the paper.
Customer 452815, July 26th, 2021
Business and administrative studies
awesome job
Customer 453201, June 24th, 2022
Criminal Justice
This has been the greatest help while I am recovering from an illness. Thank your team so much.
Customer 452671, May 2nd, 2021
English 101
thank you for the excellent work
Customer 452883, October 29th, 2021
Came in as promissed. Good paper.
Customer 453027, January 6th, 2022
Business Studies
Paper is great. Just only needed the one reference. Thank you
Customer 453139, May 4th, 2022
Thank you!
Customer 452545, February 6th, 2021
quick, fast and exact!
Customer 453027, May 24th, 2022
Customer reviews in total
Current satisfaction rate
3 pages
Average paper length
Customers referred by a friend
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Live ChatWhatsApp