Ranking Performance Measures in Multi-Task Agencies

Peter Ove Christensen, Florin Sabac, Joyce Tian

Research output: Contribution to journalJournal articleResearchpeer-review

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.
Original languageEnglish
JournalAccounting Review
Volume85
Issue number5
Pages (from-to)1545-1575
ISSN0001-4826
DOIs
Publication statusPublished - 2010
Externally publishedYes

Cite this

Christensen, Peter Ove ; Sabac, Florin ; Tian, Joyce. / Ranking Performance Measures in Multi-Task Agencies. In: Accounting Review. 2010 ; Vol. 85, No. 5. pp. 1545-1575.
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Ranking Performance Measures in Multi-Task Agencies. / Christensen, Peter Ove; Sabac, Florin; Tian, Joyce.

In: Accounting Review, Vol. 85, No. 5, 2010, p. 1545-1575.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Ranking Performance Measures in Multi-Task Agencies

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AU - Sabac, Florin

AU - Tian, Joyce

PY - 2010

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N2 - 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.

AB - 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.

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DO - 10.2308/accr.2010.85.5.1545

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VL - 85

SP - 1545

EP - 1575

JO - Accounting Review

JF - Accounting Review

SN - 0001-4826

IS - 5

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