Optimal Overhead Cost Allocation in an Agency Model with Moral Hazard and Private Information

2012 ◽  
Author(s):  
Samuel C. A. Pereira
Keyword(s):  
Moral Hazard ◽  
Private Information ◽  
Cost Allocation ◽  
Agency Model ◽  
Overhead Cost

scholarly journals ЗАГАЛЬНОВИРОБНИЧІ ВИТРАТИ: КОНЦЕПТУАЛЬНІ АСПЕКТИ ВІТЧИЗНЯНОГО ТА ЗАРУБІЖНОГО ДОСВІДУ ОБЛІКОВОГО ВІДОБРАЖЕННЯ

2014 ◽  
pp. 116-119
Author(s):  
М. В. Тюхтій ◽  
О. Г. Пономаренко
Keyword(s):  
Cost Allocation ◽  
Optimal Allocation ◽  
Enterprise Performance ◽  
Direct Impact ◽  
Overhead Cost ◽  
Tax Legislation ◽  
Foreign Countries ◽  
Definition Of ◽  
Methodological Difficulties

Повне визнання, розподіл та облікове відображен-ня загальновиробничих витрат має безпосереднійвплив на достовірність визначення собівартості, щокорелює з показниками результатів діяльності під-приємства. Методичні труднощі для практикуючогобухгалтера становить процес віднесення загальнови-робничих витрат до постійних і змінних, оскільки цейподіл в окремих ситуаціях має ознаки умовного. Це жстосується й визначення показника «нормальна по-тужність». Вітчизняні та зарубіжні наукові розроб-ки з означеної проблематики стосуються, передусім,вибору оптимальної бази розподілу загальновиробни-чих витрат. Дослідження проводилися у напрямі по-рівняльного аналізу різних варіантів баз розподілувитрат та їх адаптації до специфіки виробничогопроцесу в окремих галузях економіки. Увага такожнадається методичним підходам включення загаль-новиробничих витрат у собівартість реалізації заумов визначення її за нормами П(С)БО 16 «absorptioncost» та згідно з популярним у розвинених зарубіжнихкраїнах підходом «direct-costing», а також у світлівимог податкового законодавства. Full recognition, distribution and registration reflection overhead cost has a direct impact on the reliability of the determination of cost, which correlates with indicators of enterprise performance. Methodological difficulties for practicing accountant is the process of attributing overhead costs to fixed and variable, since this division in some situations a conventional signs. The same applies to the determination of "normal capacity". Domestic and foreign research and development of the abovementioned issues relating primarily base choosing the optimal allocation of overhead costs. Research conducted towards comparative analysis of different options cost allocation bases and their adaptation to the specific manufacturing process in specific sectors of the economy. Attention is also provided technical approaches include overheads in cost of sales in terms of its definition of the norms P (S) BU 16 «absorption cost» and according to popular in developed foreign countries approach «direct-costing», as well as in light of the requirements of the tax legislation.

scholarly journals When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

2019 ◽  
Vol 56 (5) ◽  
pp. 749-766 ◽  
Author(s):  
Minkyung Kim ◽  
K. Sudhir ◽  
Kosuke Uetake ◽  
Rodrigo Canales
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Customer Relationship Management ◽  
Private Information ◽  
Information Acquisition ◽  
Relationship Management ◽  
Selection Effect ◽  
Sales Performance ◽  
Customer Relationships ◽  
Customer Relationship

At many firms, incentivized salespeople with private information about customers are responsible for customer relationship management. Although incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. The authors investigate the sales performance–moral hazard trade-off in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, the authors detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard, leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, the adverse selection effect of acquisition incentives overwhelms the sales-enhancing effects, clarifying the importance of multidimensional incentives for customer relationship management. Reducing private information (through job transfers) hurts customer maintenance but has greater impact on productivity by moderating adverse selection at acquisition. This article also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.

scholarly journals The Incentive Model in Supply Chain with Trade Credit and Default Risk

Complexity ◽  
2019 ◽  
Vol 2019 ◽  
pp. 1-11
Author(s):  
Hong Cheng ◽  
Yingsheng Su ◽  
Jinjiang Yan ◽  
Xianyu Wang ◽  
Mingyang Li
Keyword(s):  
Supply Chain ◽  
Asymmetric Information ◽  
Moral Hazard ◽  
Private Information ◽  
Default Risk ◽  
Trade Credit ◽  
Uncertain Demand ◽  
Market Demand ◽  
Incentive Contract ◽  
Risk Neutral

Trade credit is widely used for its advantages. However, trade credit also brings default risk to the manufacturer due to the uncertain demand. And moral hazard may aggravate the default risk. The purpose of this paper is to investigate the role of moral hazard in trade credit and explore incentive contract under uncertain demand and asymmetric information. We consider a two-echelon supply chain consisting of a risk-neutral retailer ordering a single product from a risk-neutral manufacturer. Market demand is stochastic and is influenced by retailer’s sales effort which is his private information. Incentive theory is used to develop the principal-agent model and get the incentive contract from the manufacturer’s perspective. Results show that the retailer will reduce his effort level to get more profit and the manufacturer’s profit will be reduced, in the case of asymmetric information. Facing this result, the manufacturer will reduce the order quantity in incentive contract to lessen his losses. Numerical examples are provided to illustrate all these theoretical results and to draw managerial insights.

Why does bank screening matter? Private information and publicly traded securities

2016 ◽  
Vol 12 (5) ◽  
pp. 478-497 ◽  
Author(s):  
Edwin Harold Neave
Keyword(s):  
Moral Hazard ◽  
Market Share ◽  
Private Information ◽  
Equilibrium Model ◽  
Profit Maximization ◽  
Public And Private ◽  
Content Type ◽  
Equilibrium Pricing ◽  
The Public ◽  
Large Market

Purpose The purpose of this paper is to use an equilibrium model to identify the public and private informational requirements for equilibrium pricing and shows that unless these informational requirements are met, skin-in-the-game policies will not be fully effective against moral hazard for banks with relatively large market share. Selling securitizations with recourse can be. Design/methodology/approach The single-period model shows equilibrium prices depend on both public and private information, the latter produced as banks screen loans. If bank has a sufficiently large market share, it can profit by omitting the screening unless investors can detect the change. The author derives the profit function for not screening, shows that a skin-in-the-game policy cannot fully offset its incentives, and proposes a sale with recourse policy that can. Findings To value securitizations correctly, investors require both publicly and privately available information. If investors cannot monitor banks closely, correct pricing can be frustrated by profit maximization incentives, since banks with large market shares can profit from not screening. Skin-in-the-game policies cannot fully offset these incentives. Research limitations/implications The equilibrium model identifies the public and private informational requirements for equilibrium pricing and shows that unless these informational requirements are met, skin-in-the-game policies will not be fully effective for banks with relatively large market share. Selling securitizations with recourse can be more fully effective. Practical implications If it is difficult for investors to obtain private information, skin-in-the-game policies are not provide fully effective remedies against moral hazard. Sales with recourse policies offer promise because they are easy for investors to understand and difficult to evade. Social implications Trading on the basis of private information can create perverse incentives, and appropriate corrective policies can help offset them. Originality/value The general equilibrium methodology, the findings of incentives to avoid screening, the flaws with skin-in-the-game policies, and the proposal for sale with recourse are all new.

scholarly journals Optimal unemployment insurance with monitoring

10.3982/qe564 ◽  
2019 ◽  
Vol 10 (2) ◽  
pp. 693-733 ◽  
Author(s):  
Ofer Setty
Keyword(s):  
Quantitative Analysis ◽  
Moral Hazard ◽  
Unemployment Insurance ◽  
Job Search ◽  
Private Information ◽  
Unemployment Benefits ◽  
Economic Forces ◽  
The Government ◽  
Monitoring Precision ◽  
Period Model

I model job‐search monitoring in the optimal unemployment insurance framework, in which job‐search effort is the worker's private information. In the model, monitoring provides costly information upon which the government conditions unemployment benefits. Using a simple one‐period model with two effort levels, I show analytically that the monitoring precision increases and the utility spread decreases if and only if the inverse of the worker's utility in consumption has a convex derivative. The quantitative analysis that follows extends the model by allowing a continuous effort and separations from employment. That analysis highlights two conflicting economic forces affecting the optimal precision of monitoring with respect to the generosity of the welfare system: higher promised utility is associated not only with a higher cost of moral hazard, but also with lower effort and lower value of employment. The result is an inverse U‐shaped precision profile with respect to promised utility.

The Effects of Joint Cost Allocation on Intra-Firm Trade: A Comparison of Insulating and Non-Insulating Approaches

2016 ◽  
Vol 29 (2) ◽  
pp. 1-10 ◽  
Author(s):  
Anil Arya ◽  
Jonathan C. Glover ◽  
Brian Mittendorf
Keyword(s):  
Private Information ◽  
Cost Allocation ◽  
Transfer Pricing ◽  
Trade Barriers ◽  
Cost Allocations ◽  
Mutual Monitoring ◽  
Fruitful Cooperation

ABSTRACT While it is generally believed that insulating cost allocations help managers focus their attention on their own actions and shield them from the actions of others, non-insulating schemes can have appeal by encouraging teamwork and/or mutual monitoring among divisions. In this paper, we demonstrate that non-insulating allocations can induce fruitful cooperation among parties even when teamwork and mutual monitoring are nonissues. In particular, we show that in the case of intra-firm trade governed by transfer pricing, non-insulating allocations can permit one division to internalize benefits of private information borne by another and thereby alleviate information-induced trade barriers. Unlike in the traditional case of fostering teamwork, however, the cooperative nature of non-insulating allocation introduced by information differences is distinctly more circumstance-specific. In line with this view, the paper also identifies conditions under which the use of non-insulating allocation shifts divisional incentives in a manner that only adds further tension to trade.

there are remarks about the cost per unit of raw soda. The direc­ tors were well aware that production level and cost per unit were in inverse ratio: . . . this year we produced 448 000 d: more than the pre­ ceding year; therefore, the overheads for salaries and in­ terests contribute to the cost per unit proportionately less. Allocation of overhead. The allocation of overhead costs was discussed during four meetings of the Board of Directors: March 7 and 13, 1832; August 20, 1833; September 4, 1834.10 The members of the Board discussed the allocation of overheads between glass and chemical products. At the first meeting, on March 7, 1832, it was reported: The Administration (of the Company) has decided that the overheads accounts of every branch will be divided in accordance with the production as shown on the books; each product {produits speciaux) will be charged with its own direct expenses (frais speciaux). At the meeting the next week (March 13, 1832), the record indi­ cates that overhead cost allocation was again discussed: It has been pointed out to the Board of Directors by one of the members that the preceding decree, dividing over­ head expenses in accordance with each factory's produc­ tion stated by its books, could entail serious drawbacks; for example, in a year of very low sales, it we stop the production and only sell glass in stock, we should be obliged to make the chemical products bear all the over­ head expenses, which means a considerable increase in their cost prices and gives us a wrong image of them. He (the member of the B. of D.) thinks it much more conve­ nient to divide the overhead expenses in accordance with the fixed capital involved in each one of the two factories, as shown by the general inventory, capital to which we add the required working capital; with such a manner of distribution, each factory would bear its own part of overheads required by the supervision and administration of its capital. In the above-mentioned case of a factory's producing next to nothing, we would have to state a loss for that factory, which is quite normal.

2014 ◽  
pp. 260-260
Keyword(s):  
Board Of Directors ◽  
Considerable Increase ◽  
Cost Allocation ◽  
Fixed Capital ◽  
Production Level ◽  
Working Capital ◽  
Overhead Cost ◽  
The Board Of Directors ◽  
Chemical Products ◽  
The Cost
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