Motivating Truthful Subordinate Reporting: An Experimental Investigation in a Two-Subordinate Context*

Abstract. This experimental study tests the predicted effects of three performance-contingent pay schemes on subordinate misrepresentations: profit sharing, a single-subordinate truth-inducing scheme, and the Groves scheme. A contribution not found in prior experimental research is the introduction of the distinction between direct and indirect misrepresentations. The results show that, as predicted, the three schemes have different abilities to deter the two types of misrepresentations. The fewest direct and indirect misrepresentations occur under the Groves scheme and the most under the linear profit-sharing scheme. There is no significant difference between the single-subordinate truth-inducing scheme and the Groves scheme in the incidence of direct misrepresentations, but indirect misrepresentations are significantly more frequent under the former. Résumé. La présente étude expérimentale vise à tester certaines hypothèses relatives aux résultats de l'application de trois structures salariales liées au rendement sur les déclarations trompeuses des subordonnés: la participation linéaire aux bénéfices, une structure salariale individuelle favorisant la franchise et la structure Groves. Cette étude se démarque des etudes expérimentales antérieures en ce qu'elle introduit une distinction entre l'information trompeuse directe et indirecte. Les résultats révèlent que, conformément aux hypothèses, les trois structures salariales présentent des capacités différentes de décourager les deux formes de déclarations trompeuses. La structure Groves est celle qui occasionne le plus petit nombre de déclarations trompeuses directes et indirectes, tandis que la participation linéaire aux bénéfices est celle qui en occasionne le plus. Il n'existe pas de différence significative entre la structure salariale individuelle favorisant la franchise et la structure Groves en ce qui a trait à l'occurrence des déclarations trompeuses directes, mais les déclarations trompeuses indirectes sont beaucoup plus fréquentes dans le cas de la structure salariale individuelle.     

Avoiding Accounting Fixation: Determinants of Cognitive Adaptation to Differences in Accounting Method*

Much research over the last 30 years has provided evidence that individuals display accounting fixation; that is, their cognitive process does not appropriately adapt to cross‐sectional or temporal differences in an accounting method. This paper presents the results of a quasi‐experimental test of the hypothesis that cognitive adaptation to a change in accounting method is an ordinal interactive function of three person characteristics: relevant accounting knowledge, general problem‐solving ability, and intrinsic motivation to appropriately engage in the decision task. Based on a product‐pricing decision task in which participants are provided with product costs reported by two generally employed product‐costing methods (activity‐based costing [ABC] and volume‐based costing), the results show that the majority of participants did not change their cognitive behavior when there was a change in the costing method. Further, those participants who did adapt to the change in accounting method, and thus avoided accounting fixation, did so by debiasing costs reported by volume‐based costing but not by ABC. Finally, these adapters generally exhibited high values for all three of the person characteristics compared with those who did not adapt.     

An empirical analysis of the expenditure budget in research and development*

Abstract. This paper extends the prior empirical research that explains the perceived use or importance of budget control or both, with organizational context and structure in manufacturing organizations. In this paper, the perceived importance of expenditure budget control in research and development (R&D) work groups is explained empirically by organizational context (R&D work group size, source of R&D funding, and size of R&D budget) and the management control system (steps in the control process, social control). Data obtained from 76 R&D work groups in ten organizations support the five hypotheses. Generally, there is an interaction between the steps in the control process and each of the other independent variables on the perceived importance of expenditure budget control for management control of the R&D work group. Résumé. Le présent article s'inscrit dans le prolongement des travaux de recherche empiriques précédents visant à expliquer l'utilisation perçue du contrôle budgétaire ou son importance - sinon les deux - dans le contexte et la structure d'organisation des entreprises manufacturières. Dans cet article, l'importance du contrôle du budget des investissements perçue par les groupes de travail en recherche et développement (R & D) s'explique concrètement par le context organisationnel (la taille du groupe de travail en R & D, la source de financement des activités de R & D et l'importance des crédits affectés à ces activités) et par le système de contrôle de gestion (étapes du processus de contrôle, contrôle social). Les données obtenues auprès de 76 groupes de travail en R & D dans dix organisations viennent confirmer les cinq hypothèses des auteurs. L'on relève, de façon générale, une interaction entre, d'une part, les étapes du processus de contrôle et chacune des autres variables indépendantes et, d'autre part, l'importance perçue du contrôle du budget des investissements aux fins du contrôle de gestion du groupe de travail en R & D.     

The Meta Taylor Rule

We characterize U.S. monetary policy within a generalized Taylor rule framework that accommodates uncertainties about the duration of policy regimes and the specification of the rule, in addition to the standard parameter and stochastic uncertainties inherent in traditional Taylor rule analysis. Our approach involves estimation and inference based on Taylor rules obtained through standard linear regression methods, but combined using Bayesian model averaging techniques. Employing data that were available in real time, the estimated version of the “meta” Taylor rule provides a flexible but compelling characterization of monetary policy in the United States over the last 40 years.     

INTEGRATION AND UTILIZATION OF PUBLIC EDUCATION RESOURCES IN REMOTE AND HOMOGENOUS AREAS: A CASE STUDY OF THE UPPER PENINSULA OF MICHIGAN

This article adopts the nonradial Russell measure in the context of data envelopment analysis to measure the relative efficiency of public education in the Upper Peninsula of Michigan, a geographically remote but homogenous region. The empirical analysis focuses on the effect of community characteristics on the schools efficiency by using school district–level data. Several different forms of model specifications in the stage of data envelopment analysis are executed to check the robustness of the findings by adopting extreme-bound analysis and thick modeling approach. Interestingly, despite the homogeneity of the Upper Peninsula, wide differences in the efficiency of education are found. These differences are robust as to model specification, suggesting that efficiency studies might be a useful guide for policy makers. Community factors such as income and educational levels, obtained from the census data by school district, are introduced in the second stage because they will influence the efficiency of the schools and the technology by which schools help students learn. Median family income is the most important explanatory variable, whereas the median value of housing is insignificant. In addition, private school enrollments are unrelated to the efficiency of public education, contrary to what many advocates of private schools have contended. These findings help understand education efficiency, having policy implications for education-oriented states such as Michigan. (JEL I2 , N3 , H52 )     

The Effects of State Risk and Controllability Filters on Compensation Contract and Effort Choice

Surveys of business firms in the U.S.A. indicate that standard-based compensation contracts are common in practice. Analytical studies of this form of contract have suggested that under conditions of state risk, an employee's contract and effort choice are significantly affected by how pay relates to measured performance, and whether the compensation contract filters out the effects on measured performance of factors beyond the employee's control. This paper reports the results of a laboratory experiment indicating that in the presence of state risk, an individual's choice of compensation contract depends jointly on these two contract attributes and his/her risk preference as well as performance capability. The findings also indicate that actual effort is a function of the realized state, the presence/absence of a controllability filter, and the level at which the individual had expected to perform at the time of his/her contract selection. When an adverse state was realized, subjects without a controllability filter still exerted the level of effort that they had expected at contract selection, even though their marginal return to effort had been substantially reduced. On the other hand, when the controllability filter was absent, subjects who had a favourable realized state increased their effort in response to the increased marginal return to effort.     

Auditors' usage of unaudited book values when making presampling audit value estimates*

Abstract. An important issue in audit judgment research concerns auditors' use of unaudited book values when making judgments in the presampling phase of the audit. This paper presents a rudimentary model of the auditor's belief revision process with respect to unaudited book values from an audit value estimation perspective. An experiment testing some implications of the model is also presented. The model proposes that the auditor should judge the validity of unaudited book values in the circumstances and use them accordingly when making presampling audit value estimates. The experimental results indicated that the subjects (auditors) used available unaudited book values and that the extent of usage varied over accounts. However, the results also indicated some inaccurate presampling validity judgments which led to overweighting of unaudited book values. Résumé. Une question importante qui préoccupe les chercheurs dans le domaine de la formulation de jugements en vérification a trait à l'utilisation par les vérificateurs de valeurs comptables non vérifiées dans la formulation de jugements au cours de la phase de la vérification précédant l'échantillonnage. Les auteurs présentent un modèle rudimentaire du processus de révision des convictions du vérificateur en ce qui a trait aux valeurs comptables non vérifiées dans une perspective d'estimation de la valeur de vérification. Ils font également état d'une expérience destinée à vérifier certaines des conséquences du modèle. Selon le modèle, le vérificateur devrait juger de la validité des valeurs comptables non vérifiées dans les circonstances et les utiliser en conséquence dans la formation d'estimations de la valeur de vérification avant échantillonnage. Les résultats de l'expérience révèlent que les sujets (vérificateurs) utilisent les valeurs comptables non vérifiées disponibles et que l'étendue de cette utilisation varie avec les comptes. Toutefois, les résultats révèlent aussi l'inexactitude de certains jugements relatifs à la validité antérieure à l'échantillonnage, à la suite desquels une importance trop grande a été accordée aux valeurs comptables non vérifiées.