INCENTIVE CONTRACTS WITH AUDITING AND MONITORING IN THE PRINCIPAL-AGENT RELATIONSHIP
Abstract
This research extends the principal-agent theory as developed by Ross, Harris and Raviv, and Ng and Stoeckenius to the situation where the principal is unable to observe output, the state of nature, or the effort level of the agent. It gives necessary and sufficient conditions for when there will exist a demand for auditing by the principal. It analyzes the effects of auditing on the financial report issued by the agent and the agent's effort choice. It gives sufficient when imperfect information with respect to effort or output is as valuable as perfect information in the construction of contracts by the principal.
Degree
Ph.D.
Subject Area
Economics
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