Marking to Market versus Taking to Market

Guillaume Plantin () and Jean Tirole
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Guillaume Plantin: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh]

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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)
Date: 2016-11-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393184v1
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Citations: View citations in EconPapers (1)

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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 (2015)
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