Staged-Financing Contracts with Accounting Fraud

摘要

This paper studies the use of incentive contracts to prevent accounting frauds. I show that when some agents in the population are technically con- strained from falsifying reports and stealing cash, the Bolton-Scharfstein con- tract remains to the optimal truth-telling contract. However, it may not be the optimal contract for a large range of parametric values. The optimal con- tract may induce stealing in equilibrium. Moreover, screening different types of agents is too costly for the principal ex ante, therefore, the optimal contract is always a pooling contract. The model provides insights to the optimality of pooling contracts versus separating contracts and the validity of applying the revelation principle in a multi-dimensional asymmetric information setting.