On Managerial Incentives, Performance Indicators and Efficiency Audits in Public Enterprises
Keywords:
managerial incentives, performance indicators, efficiency audits, public enterprises, principal-agent model, managerial accountingAbstract
This article discusses the issues of the selection of performance indicators and the design of efficiency audits in public enterprises following a standard principal-agent model. First, using a well known proposition on the value of information we argue that there must exist a limit to the number of performance indicators employed and that some broadly advocated measures such as productivity indices may be redundant if a well defined (outcome-based) bonus incentive scheme is already in use. Second, following recent theoretical research on managerial accounting we interpret efficiency audits as conditional information mechanisms or costly investigations that are triggered only in specific circumstances, which depend on the extreme realisations of the outcome used to evaluate managerial performance.Downloads
References
Aharoni, Y. (1982). State-owned enterprise: An agent without a principal. In L. P. Jones (Ed.), Public enterprise in less-developed countries (pp. 67–76). Cambridge University Press. https://doi.org/10.1017/cbo9780511752988.005
Aharoni, Y. (1983). Comprehensive audit of management performance in U.S. state-owned enterprises. Annals of Public and Co-operative Economy, 54(1).
Baiman, S., & Demski, J. (1980a). Economically optimal performance evaluation and control systems. Journal of Accounting Research, 18(Suplemento), 184–220. https://doi.org/10.2307/2490338
Baiman, S., & Demski, J. (1980b). Variance analysis procedures as motivational devices. Management Science, 26(8), 840–848. https://doi.org/10.1287/mnsc.26.8.840
Balachandran, B. V., & Ramakrishnan, R. T. (1980). Internal control and external auditing for incentive compensation schedules. Journal of Accounting Research, 18(Suplemento). https://doi.org/10.2307/2490334
Baron, D., & Besanko, D. (1984). Regulation, asymmetric information, and auditing. RAND Journal of Economics, 15(4), 447–470.
Crew, M. A., Kleindorfer, P., & Sudit, E. F. (1979). Incentives for efficiency in the nationalised industries: Beyond the 1978 White Paper. Journal of Industrial Affairs, 7, 11–15.
Demski, J., & Feltham, G. (1978). Economic incentives in budgetary control systems. The Accounting Review, 53(2), 336–359. https://doi.org/10.2308/tar-4492491
Demski, J., & Kreps, D. M. (1982). Models in managerial accounting. Journal of Accounting Research, 20(Suplemento), 117–148. https://doi.org/10.2307/2674678
Demski, J., Sappington, D., & Spiller, P. (1986). Entry in regulated industries: An information-based perspective [Ponencia]. VI Latin American Meeting of the Econometric Society, Córdoba, Argentina.
Evans, J. H., III. (1980). Optimal contracts with costly conditional auditing. Journal of Accounting Research, 18(Suplemento), 108–128.
Finsinger, J., & Vogelsang, I. (1982). Performance indices for public enterprises. In L. P. Jones (Ed.), Public enterprise in less-developed countries (pp. 281–296). Cambridge University Press.
Gjesdal, F. (1976). Accounting in agencies [Mimeo]. Graduate School of Business, Stanford University.
Gravelle, H. S. E. (1982). Incentives, efficiency and control in public firms. Zeitschrift für Nationalökonomie, (Suplemento 2), 79–104.
Grossman, S., & Hart, O. (1983). An analysis of the principal-agent problem. Econometrica, 51(1), 7–45. https://doi.org/10.2307/1912246
Harris, M., & Raviv, A. (1979). Optimal incentive contracts with imperfect information. Journal of Economic Theory, 20(2), 231–259. https://doi.org/10.1016/0022-0531(79)90073-5
Hess, J. D. (1983). The economics of organization. North-Holland.
Holmström, B. R. (1978). On incentives and control in organizations [Tesis doctoral no publicada]. Graduate School of Business, Stanford University.
Holmström, B. R. (1979). Moral hazard and observability. Bell Journal of Economics, 10(1), 74–91.
Holmström, B. R. (1980). Discussion of «Economically optimal performance evaluation and control systems». Journal of Accounting Research, 18(Suplemento), 221–226.
Jones, L. P. (Ed.). (1982). Public enterprise in less-developed countries. Cambridge University Press. https://doi.org/10.1017/cbo9780511752988.012
Likierman, J. A. (1983). Nationalised industries. In Henley et al. (Eds.), Public sector accounting and financial control. Van Nostrand Reinhold.
Macdonald, G. (1984). New directions in the economic theory of agency. Canadian Journal of Economics.
Milgrom, P. (1981). Good news and bad news: Representation theorems and applications. Bell Journal of Economics, 12(2), 380–391. https://doi.org/10.2307/3003562
Mirrlees, J. A. (1974). Notes on welfare economics, information and uncertainty. In M. Balch et al. (Eds.), Essays on economic behaviour under uncertainty. North-Holland.
Mirrlees, J. A. (1975). The theory of moral hazard and unobservable behaviour: Part I [Mimeo]. Nuffield College, Oxford.
Mirrlees, J. A. (1976). The optimal structure of incentives and authority within an organization. Bell Journal of Economics, 7(1), 105–131. https://doi.org/10.2307/3003192
National Economic Development Office. (1976). A study of UK nationalised industries.
Navajas, F. H. (1984). Managerial incentives and control in public enterprises [Tesis doctoral]. University of Oxford.
Navajas, F. H. (1986). Bonos, incentivos gerenciales, eficiencia y control en la empresa pública. Económica (La Plata), 32(1), 81–118.
Raiffa, H. (1968). Decision analysis: Introductory lectures on choices under uncertainty. Addison-Wesley.
Redwood, J., & Hatch, J. (1982). Controlling public industries. Basil Blackwell.
Robson, W. A. (1962). Nationalised industry and public ownership (2.ª ed.). George Allen & Unwin.
Rogerson, W. P. (1985). The first-order approach to principal-agent problems. Econometrica, 53(6), 1357–1367.
Ross, S. (1973). The economic theory of agency: The principal's problem. American Economic Review, 63(2), 134–139.
Schmalensee, R. (1979). The control of natural monopolies. D. C. Heath.
Select Committee on Nationalised Industries. (1968). Ministerial control of the nationalised industries (HC 371, Vols. 1-3). HMSO.
Shavell, S. (1979). Risk sharing and incentives in the principal and agent relationship. Bell Journal of Economics, 10(1), 55–73. https://doi.org/10.2307/3003319
Spence, M., & Zeckhauser, R. (1971). Insurance, information, and individual action. American Economic Review, 61(2), 380–387.
Stiglitz, J. (1974). Incentives and risk sharing in sharecropping. Review of Economic Studies, 41(2), 219–255. https://doi.org/10.2307/2296714
White Paper. (1961). The financial and economic obligations of the nationalised industries (Cmnd. 1337). HMSO.
White Paper. (1967). Nationalised industries: A review of economic and financial objectives (Cmnd. 3437). HMSO.
White Paper. (1978). The nationalised industries (Cmnd. 7131). HMSO.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 1987 Fernando H. Navajas
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Article usage
- ViewsTimes this article's page was opened since the journal started recording statistics. One person can visit more than once.
- 134
- DownloadsTimes the full text of this article (usually the PDF) was opened or downloaded.
- 165
All time, as recorded by the journal.
Last 2 years: 54 views, 91 downloads.
1.23 downloads per view (journal average 1.65).Downloads of the full text for every abstract view of this article, compared with the whole journal.
Explore the journal's metrics
