Marking to market versus taking to market

Guillaume Plantin and Jean Tirole

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: While the debate on cost and market-value accounting has been raging for years, economists lack a framework allowing a comparison of their relative merits. This paper considers an agency model in which the measurement of an asset can be based on public market data (marking to market) and/or on the realization of its value through costly resale to an informed buyer (taking to market). At the optimal contract, noisier market data lead to cost accounting and gains trading (selling winners/keeping losers) whereas accurate data naturally favor market-value accounting. The quality of market data and the magnitude of resale costs both depend on the volume of transactions, and therefore on accounting rules. The paper studies the mutual feedback between individually optimal accounting rules and asset market liquidity. This equilibrium approach reveals a socially excessive use of market-value accounting that dries up market liquidity and reduces the informativeness of price signals.

Keywords: cost and market value accounting; agency; gains trading; equilibrium; accounting rules (search for similar items in EconPapers)
JEL-codes: D82 M41 M52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2015-12-02
New Economics Papers: this item is included in nep-acc and nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://eprints.lse.ac.uk/65104/ Open access version. (application/pdf)

Related works:
Journal Article: Marking to Market versus Taking to Market (2018)
Working Paper: Marking to market versus taking to market (2018)
Working Paper: Marking to market versus taking to market (2018)
Working Paper: Marking to Market versus Taking to Market (2016)
Working Paper: Marking to Market versus Taking to Market (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:65104

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().