This course consists of three modules. The topics of these modules are:

  • Goal Congruent Performance Measures
  • Optimal Capital Budgeting Mechanisms
  • Overlapping Capacity Investments

Items marked with a (*) on the following reading list will be covered in some detail in session. Other readings listed here serve as background material and will be referred to in passing.

Day One: Goal Congruent Performance Measures

  • (*) Young and O’Byrne. 2000. Chapters 2 and 3 in, EVA and Value Based Management: A Practical Guide, McGraw Hill.
  • (*) Balachandran. 2005. "How Does Residual Income Affect Investment? The Role of Prior Performance Measures". Management Science. 51(7). 1032-1045.
  • (*) Rogerson. 1997. “Inter-temporal Cost Allocation and Managerial Investment Incentives: A Theory Explaining the Use of Economic Value Added as a Performance Measure”. Journal of Political Economy. 105: 770-795.
  • (*) Dutta and Reichelstein. 2005 "Accrual Accounting for Performance Measurement", Review of Accounting Studies. 10: 527-552.2
  • Pfeiffer and Schneider. 2007. "Residual Income Based Compensation Schemes for Controlling Investment Decisions with Sequential Private Information", Management Science.53: 495-507.
  • Dutta, S. 2008. “Dynamic Performance Measurement,” Foundations and Trends in Accounting, 2(3):1-71.

Day Two: Optimal Capital Budgeting Mechanisms

  • Rajan and Reichelstein. 2004. “A Perspective on Asymmetric Information, Incentives and Intra-firm Resource Allocation”. Management Science. 50:1615-1623.
  • (*) Dutta and Reichelstein. 2002. " Controlling Investment Decisions: Depreciation- and Capital Charges", Review of Accounting Studies.7:253-281.
  • Baldenius. 2003. “Delegated Investment Decisions and Private Benefits of Control.” The Accounting Review. 78(4): 909-930.
  • (*) Dutta and Fan. 2009. “Hurdle Rates and Project Development Efforts.” The Accounting Review. 84(2):405-432.
  • Vaysman, “Optimal Incentives to Abandon Investments”, mimeo, INSEAD, 2006.
  • (*) Baldenius, Dutta and Reichelstein. 2007. “Cost Allocation for Capital Budgeting Decisions.” The Accounting Review. 82(4):837-867.
  • Bernardo, Cai and Luo. 2004 " Capital Budgeting in Multidivisional Firms: Information, Agency and Incentives. Review of Financial Studies. 17:739-67.
  • Pfeiffer, Johnson and Schneider. 2010. "Sequential Capital Budgeting for Shared Investments." Working Paper, U.C. Berkeley and University of Vienna.3

Day Three: Overlapping Capacity Investments

  • (*) Pittman. 2009. “Who Are You Calling Irrational? Marginal Costs, Variable Costs and the Pricing Practices of Firms”. Economic Analysis Group. Antitrust Division. U.S. Department of Justice. EAG 09-3.
  • Baldenius. 2008. “Internal Pricing.” Foundations and Trends in Accounting. 3(4).
  • (*) Rogerson. 2008. “Inter-temporal Cost Allocation and Investment Decisions," Journal of Political Economy. 116: 931-950.
  • Rajan and Reichelstein. 2009. “Depreciation Rules and the Relation between Marginal and Historical Cost," Journal of Accounting Research.47: 823-865.
  • Rogerson. 2011. “On the Relationship Between Historic, Forward-Looking Cost and Long Run Marginal Cost.” Review of Network Economics(forthcoming).
  • (*) Dutta and Reichelstein. 2010 “Decentralized Capacity Management and Internal Pricing”, Review of Accounting Studies. 15:442-478.
  • Goex. 2010. “Discussion of ‘Decentralized Capacity Management and Internal Pricing’” Review of Accounting Studies.15:479-502.
  • (*) Nezlobin, Reichelstein and Wang. 2011. “Managerial Performance Evaluation for Capacity Investments.” Working Paper. Stanford Graduate School of Business.