On the Effects of the Degree of Discretion in Reporting Managerial performance

We consider a principal-agent setting in which a manager’s compensation de- pends on a noisy performance signal, and the manager is granted the right to choose an (accounting) method to determine the value of the performance signal. We study the effect of the degree of such reporting discretion, measured by the number of acceptable methods, on the optimal contract, the expected cost of com- pensation and the manager’s expected utility. We find that while an increase in reporting discretion never harms the manager, the effect on the expected cost of compensation is more subtle. We identify three main effects of increased report- ing discretion and characterize the conditions under which the aggregate of these three effects will lead to a higher or lower cost of compensation.managerial compensation;reporting flexibility

Dynamic Tax Depreciation Strategies

The tax depreciation decision potentially has significant impact on the prof- itability of firms and projects. Indeed, the depreciation method chosen for tax purposes affects the timing of tax payments, and, as a consequence, it also affects the after-tax net present value of investment projects. Previous research focusses on the optimal choice of depreciation method under the assumption that the de- preciation method has to be set ex ante and cannot be changed during the useful life of the asset. In reality however, changes are allowed under certain circum- stances. This paper develops a dynamic programming approach to determine the firm’s optimal choice with regard to the initial depreciation method, and whether changes of method are proposed in later periods.Tax depreciation;Net Present Value;Dynamic Programming

Optimal Tax Depreciation Lives and Charges under Regulatory Constraints

Depreciation is not only a representation of the loss in asset-value over time.It is also a strategic tool for management and can be used to minimize tax payments.In this paper we derive the depreciation scheme that minimizes the expected value of the present value of future tax payments for two types of constraints on the depreciation method.taxation;optimization;depreciation;uncertainty

A Partial Ranking Algorithm for Resource Allocation Problems

We present an algorithm to solve resource allocation problems with a single resource, a convex separable objective function, a convex separable resource-usage constraint and bounded variables.Through evaluation of specific functions in the lower and/or upper bounds, we obtain information on whether or not these bounds are binding.Once this information is available for all variables, the optimum is found through determination of the unique root of a strictly decreasing function.A comparison is made with the currently known most efficient algorithms.Programming;non-linear