Contract Theory of Organizations, Accounting and

Transcript:Contract Theory of Organizations, Accounting and:
Contract Theory of Organizations, Accounting and Control Shyam Sunder, Yale University Third International Conference on Accounting and Finance University of Namibia, Windhoek, June 13-14, 2011 1 of 39 Three Basic Ideas Organizations as a set of contracts Shared facts for conflict resolution Control in organizations as balance and equilibrium among various interests 2 of 39 Organization as a set of Contracts Economic agents Contracts Contributions Resource Entitlements Necessary Conditions Satisfies each individual Aggregate feasibility 3 of 39 4 of 39 5 of 39 Contributions and Entitlements of Various Agents 6 of 39 Assumptions Economic agents Preferences Consistency of actions Contract as mutual understanding or expectation Not necessarily explicit Role of social conventions 7 of 39 Goals and Scope Goals of each individual Organization’s goals not considered Organization as an arena Organization as a tournament Applicable to all organizations Focus here on business firm 8 of 39 Functions of Accounting To Help Assemble Implement Enforce Modify Maintain the contract set through five processes 9 of 39 Five Processes of Accounting Measuring resource inflows Measuring resource outflows Determination of contract performance Information for factor markets Common knowledge for contract renegotiation 10 of 39 Measuring Resource Inflows Vendors: At the receiving dock Customers: cashier, accounts receivables Labor: clock, inspection Managers: intangible Shareholders: shareholder accounts 11 of 39 Measuring Resource Outflows Employees: payroll Customers: shipping Vendors: account payables Government: tax accounts Data organized by cause-effect in double-entry bookkeeping 12 of 39 Contract Performance Compare resource inflows and outflows Determine who has fulfilled contracts, how much Comparative reports Examples: Customer account statement Managerial accounting 13 of 39 Information for Factor Markets What resources are expected What resources are available for disbursement Find people who have/want them Markets for labor, goods, and capital Proforma financial statements, business plans and budgets by the entrepreneur No permanent occupants, must find replacements Costs and benefits of occupying contractual slots 14 of 39 Common Knowledge for Renegotiation All contracts have finite terms (except shareholders) Conditions Change Potential for Empty as well as Serious Threats and Bluffs Public Disclosure and Common Knowledge Cut Deadweight Losses to Society 15 of 39 Necessary Conditions 1) Individual Condition: Each participants expects to receive at least the opportunity cost of contributions he/she makes to the organization 2) Aggregate Condition: Contributions of all participants can produce enough output to meet the expectations of all 16 of 39 Income/Value of the Firm Extensive income as the sum