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| Author: | Baiman, S. Evans, J. H. III Noel, J. |
| Title: | Optimal contracts with utility-maximizing auditor. |
| Journal: | Journal of Accounting Research
1987 : AUTUMN, VOL. 25:2, p. 217-244 |
| Index terms: | AUDITING MANAGEMENT CONTROL INFORMATION TRANSFER ACCOUNTABILITY |
| Language: | eng |
| Abstract: | The paper presents a principal-agent model in which the agent becomes better informed than the principal after the contract agreement. To diminish the inefficiency caused by this asymmetry, the principal and the agent agree that the agent will communicate the private information to the principal. By hiring a utility-maximizing auditor, they can further reduce the inefficiency, but a moral hazard problem appears, increasing the inefficiency. The model characterizes the optimal contracts and identifies conditions which are sufficient to ensure the improvement in efficiency. |
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