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 constrained from falsifying reports and stealing cash,the Bolton-Scharfstein contract remains to the optimal tru th-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. JEL Classification: D82,D86.