Optimal Cost Targets and Incentives for Acquiring Expertise

Stanley Baiman and Madhav V. Rajan
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Stanley Baiman: University of Pennsylvania
Madhav V. Rajan: University of Pennsylvania

Review of Accounting Studies, 1998, vol. 3, issue 3, No 1, 259 pages

Abstract: Abstract This paper studies the optimal choice of cost standards (or cost targets) over time in an agency setting in which a worker is responsible for both implementing actions and acquiring skill/expertise that would enable him to improve his future performance with respect to those actions. We characterize the effect of the decision horizon and the observability of the worker's acquired expertise on both the optimal path of cost standards and the worker's investments in expertise. In addition, we characterize the trade-off between motivating the worker's investment in expertise and motivating his efficient use of the expertise.

Keywords: Optimal Choice; Optimal Path; Future Performance; Cost Standard; Agency Setting (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1023/A:1009625322822

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