The Controllability Principle in Responsibility Accounting: Another Look

The Controllability Principle in Responsibility Accounting: Another Look In this paper, we illustrate some subtleties in responsibility accounting by studying settings in which there is an interplay between different control problems. In a setting in which agents are involved in both team and individual production, we provide conditions under which the agents are not held responsible for the team performance measure despite the fact that each agent conditionally controls it. This emphasizes the distinction between "informativeness" and "the value of information." In a second setting, one of owner intervention, we provide conditions under which the agent is held responsible for a variable that he does not conditionally control. This emphasizes an assumption underlying the basic principal-agent model in which the notion of conditional controllability is derived. The basic model is of one-sided moral hazard. In models of two-sided moral hazard the agent's pay may depend on variables that are conditionally controlled by the principal. This serves as a substitute for commitment by the principal.