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Game Theory Models in Accounting

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Game Theory and Business Applications

Part of the book series: International Series in Operations Research & Management Science ((ISOR,volume 194))

Abstract

Accounting from a game-theoretic view posits that accounting data affects, and is affected by, strategic interaction within and across firms. This view holds that the accounting process alters the strategic interaction among agents, by impinging on their incentives and on the contracts they make to constrain their behavior.

This chapter considers three main topics. First, the principal-agent paradigm is used to provide insights into the design of performance measures to alleviate moral hazard, including the ex ante control of agents through stochastic monitoring. A second focus is on accounting mechanisms, such as budgeting and transfer pricing, so as to coordinate inter-divisional activities within a firm in the presence of goal conflicts and information asymmetries. These two themes constitute the core of game-theoretic approaches to management accounting. A third focus is on the recent literature concerning auditor hiring and audit pricing in the presence of adverse selection. This work illustrates game- theoretic applications in an area that has traditionally been viewed as “markets” driven.

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Author information

Authors and Affiliations

  1. Carlson School of Management, University of Minnesota, Minneapolis, USA

    Chandra Kanodia

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  1. Chandra Kanodia
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Correspondence to Chandra Kanodia .

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Editors and Affiliations

  1. , Department of Economics, Pennsylvania State University, University Park, 16802-3306, Pennsylvania, USA

    Kalyan Chatterjee

  2. , School of Management, Boston University, Commonwealth Ave. 595, Boston, 02215, Massachusetts, USA

    William Samuelson

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Kanodia, C. (2014). Game Theory Models in Accounting. In: Chatterjee, K., Samuelson, W. (eds) Game Theory and Business Applications. International Series in Operations Research & Management Science, vol 194. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-7095-3_3

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