260 RICHARD A. LAMBERT optimal performance measurement. One branch focuses on renegotiation or lack of ability to commit to long term contracts. In these papers, information (or “accurate” performance measurement) at intermediate stages of the model is “bad”; it hurts welfare. While the reasons are somewhat different in different papers, they are generally related to the idea that the release of information decreases the ability of the principal and the agent to insure the agent against risk. That is, risks that are ex ante optimal to insure against become ex post optimal to renegotiate. To make sure these risks remain insurable, the two parties agree to garble the information that will be available at intermediate dates or delay its release, or aggregate signals. See Arya et al (1998), Gigler and Hemmer (1998), Indjejikian and Nanda (1998) and Demski and Frimor (1999) for examples. The other branch of the multiperiod literature focuses on motivating long term investments. These papers often make strong assumptions about the information that is available about future cash ﬂows, and they derive strong links between optimal performance measures and economic valuation measures. Optimal performance measures are very forward looking (or based on accrual decisions that are
Review of Accounting Studies – Springer Journals
Published: Sep 30, 2004
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