InformationSystemsandPrincipalAgentModels

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1、Information Systems under Principal-agent ModelingDr.Chak-Tong Chau 仇澤棠博士U.S.Fulbright Professor中美交流富布萊特教授What Is Information?Broadly defined,information is any device that helps to reduce uncertainty.Alternatively,information should be helpful in:udetecting the current state of the world,oruforecas

2、ting the future state of the worldDr.Chak-Tong Chau2Fulbright Guest Lecture MaterialsGood Information Should be Useful in:nImproving production decisions telling us to do the right things.nOptimizing the scope for risk sharing so that some people can not make profits by harming other people.nElimina

3、ting“information asymmetry”so that ex ante(before-the-act)private information can be known ex post(after-the-act).Dr.Chak-Tong Chau3Fulbright Guest Lecture MaterialsTime line of a typical agency contractContract agreedEffort selectedPayoff revealedPre-contract informationPre-effort selection informa

4、tionPost-effort informationPost-payoff informationTimingInformation AvailabilityTo agent only(private)To all parties(public)Pre-contractAgents proprietary knowledgeHistorical informationPost-contract,pre-effortInformation set under decentralizationPost-effort,pre-payoffVoluntary disclosure relevatio

5、n principlePost payoff(ex post)Not interestingFinancial reportingDr.Chak-Tong Chau4Fulbright Guest Lecture MaterialsUsefulness of InformationHow do we know,a priori,that information is“useful”?Consider the following payoff structure(known to all):EffortS1S2S3S4S5S6Expected Payoffe1=102334553.67e2=52

6、234453.33Dr.Chak-Tong Chau5Fulbright Guest Lecture MaterialsUsefulness of InformationNow,we have an information system that will generate these signals:S1,S2,S3S4,S5,S6Y1Y2Signal:Y1Y2S1S2S3S4S5S6e1=10233455e2=5223445In a sense,the information system partitions the matrix as followsQuestion:Are the s

7、ignals,Y1 and Y2,useful?Dr.Chak-Tong Chau6Fulbright Guest Lecture MaterialsUsefulness of InformationNow,we have another information system that will generate these signals:S1S4,S5,S6Y1Y3Signal:Y1Y2Y3S1S2S3S4S5S6e1=10233455e2=5223445This new information system partitions the matrix as followsQuestion

8、:Are the signals,Y1,Y2 and Y3 useful?S2,S3Y2Dr.Chak-Tong Chau7Fulbright Guest Lecture MaterialsCan Private Information to Agent Benefit the Principal?Consider the following payoff structure(known to all):S1S2S3S4Expected Payoff to Principal before Payment to AgentProb.0.250.250.250.25e1=000000e2=520

9、,00020,00025,00030,00023,750e2=620,00030,00030,00035,00028,750Agents Utility Function:U=X-e2 100 where:X=agents compensationse=the effort level used by the agentIf the Principal can observe effort,how would he pay the agent?X -62=100X=18,496Dr.Chak-Tong Chau8Fulbright Guest Lecture MaterialsCan Priv

10、ate Information to Agent Benefit the Principal?Now,if the Principal cannot observe effort,how would he pay the agent?How about this compensation contract(a fixed salary of$18,496)to agent?Would this work?S1S2S3S4Expected Utility to AExpected Payoff to PProb.0.250.250.250.25e1=018,49618,49618,49618,4

11、96e2=518,49618,49618,49618,496e3=618,49618,49618,49618,496136111100-18,496 5,254 10,254Thus,a fixed salary to someone whom you cannot observe wont work.A“moral hazard”problem will come into play.Dr.Chak-Tong Chau9Fulbright Guest Lecture MaterialsCan Private Information to Agent Benefit the Principal

12、?Now then,what about a contingent salary of$18,496 to agent?Would this improve the Principals payoff?S1S2S3S4Expected Utility to AExpected Payoff to PProb.0.250.250.250.25e1=00000e2=518,49618,496018,496e3=618,49618,49618,49618,496 0 77100 0 9,878 10,254Now,the contingent salary contract will improve

13、 by forcing the Agent to give(e3=6).Let us now look at the“private information to agent”issue!Dr.Chak-Tong Chau10Fulbright Guest Lecture MaterialsCan Private Information to Agent Benefit the Principal?This private information system(only observable to the agent)generates these signals:S1,S2S3,S4Y1Y2

14、Would the contingent salary of$18,496 to agent still work?Signal:Y1Y2Expected Utility to Agent with Private infoExpected Payoff to Principal with Private infoS1S2S3S4Prob.0.250.250.250.25e1=00000e2=518,49618,496018,496105.5(100)7,754(10,254)e3=618,49618,49618,49618,496Dr.Chak-Tong Chau11Fulbright Gu

15、est Lecture MaterialsCan Private Information to Agent Benefit the Principal?Now,the new private information makes it easy for the agent to cheat.So,what should the principal do?Consider this new contingent contract(corresponding payoffs):S1S2S3S4Prob.0.250.250.250.25e1=00000e2=514,722(20,000)14,722(

16、20,000)0(25,000)20,544(30,000)e3=614,722(20,000)20,544(30,000)20,544(30,000)18,496(35,000)Would the new plan work?Let us calculate the agents utility and the principals payoff.Dr.Chak-Tong Chau12Fulbright Guest Lecture MaterialsS1S2S3S4Expected Utility to AExpected Payoff to PProb.0.250.250.250.25e1

17、=00000e2=514,722(20,000)14,722(20,000)0(25,000)20,544(30,000)e3=614,722(20,000)20,544(30,000)20,544(30,000)18,496(35,000)0 71.5100 0 n/a 10,173.5Summary of results:Types of contractPrincipals PayoffsAgents UtilityFixed salary,effort observable10,254100.0Fixed salary,effort unobservable-18,496136.0Co

18、ntingent salary,no private information10,254100.0One-amount,with private information7,754105.5Multiple-amount,with private information10,173.5100.0Dr.Chak-Tong Chau13Fulbright Guest Lecture MaterialsPre-effort“Public”Information?This time,it is different in that the information is available to all,p

19、rincipal and agent.(changed)S1S2S3S4Prob.0.250.250.250.25e1=00000e2=520,000(18,496)25,000(0)25,000(0)30,000(18,496)e2=620,000(18,496)30,000(18,496)30,000(18,496)35,000(18,496)This public information system(observable to all)generates these signals:S1,S2S3,S4Y1Y2Is this information useful to the agen

20、t?Dr.Chak-Tong Chau14Fulbright Guest Lecture MaterialsSignal:Y1Y2Expected Utility to AgentExpected Payoff to PrincipalS1S2S3S4Prob.0.250.250.250.25e1=00000e2=518,4960018,49610010,254e3=618,49618,49618,49618,496First,the information has no value to the agent.Why?This is because the agent,by observing

21、 Y1,cannot guarrantee that the payoff$25,000 will not occur.However,is this kind of information system useful to the Principal?Dr.Chak-Tong Chau15Fulbright Guest Lecture MaterialsNow,let us look at this new contract(corresponding payoffs):Signal:Y1Y2S1S2S3S4Prob.0.250.250.250.25e1=00000e2=515,170(20

22、,000)15,170(25,000)15,170(25,000)17,030(30,000)e3=615,170(20,000)17,030(30,000)17,030(30,000)21,074(35,000)Now,if Y1 is observed,what would the agent do?U(e2)=15,1701/2 52=98.17U(e3)=15,1701/2*0.5+17,0301/2*0.5 62=90.89Thus,the Principal in fact tells the agent to be lazy!Dr.Chak-Tong Chau16Fulbrigh

23、t Guest Lecture MaterialsSignal:Y1Y2S1S2S3S4Prob.0.250.250.250.25e1=00000e2=515,170(20,000)15,170(25,000)15,170(25,000)17,030(30,000)e3=615,170(20,000)17,030(30,000)17,030(30,000)21,074(35,000)Then,if Y2 is observed,what would the agent do?U(e2)=15,1701/2*0.5+17,0301/2*0.5 52=101.88U(e3)=17,0301/2*0

24、.5+21,0741/2*0.5 62=102.03This time,the agent will want to work hard.On average,98.17*0.5+102.03*0.5=100So,this is acceptable to the agent.Dr.Chak-Tong Chau17Fulbright Guest Lecture MaterialsBut for the Principal,why should he care?Signal:Y1Y2S1S2S3S4Prob.0.250.250.250.25e2=520,00025,000 e3=630,0003

25、5,000Wages to A(15,170)(15,170)(17,030)(21,074)Expected Residual1,207.502,457.503,242.503,481.5010,389Note that this is larger than 10,254,the optimal solution under perfect information.Thus,seemingly useless information can be useful!Dr.Chak-Tong Chau18Fulbright Guest Lecture MaterialsIn Conclusion

26、,nWe cannot guarrantee that people will always do the ethically correct things.nTherefore,they will have to be monitored and controlled.nInformation systems provide us with the means to:uinform us what has happened,andumotivate people to do the ethically correct things.nIt is therefore important to consider these points in designing any managerial accounting systems.Dr.Chak-Tong Chau19Fulbright Guest Lecture Materials谢谢观看/欢迎下载BY FAITH I MEAN A VISION OF GOOD ONE CHERISHES AND THE ENTHUSIASM THAT PUSHES ONE TO SEEK ITS FULFILLMENT REGARDLESS OF OBSTACLES.BY FAITH I BY FAITH