Asymmetry Of Pre-Decision Information And Managerial Accounting

Employees often acquire local (private) information in the process of discharging their delegated duties. An informational asymmetry exists whenever information is known to employees but not to the firm's owners. Informational asymmetries can create a control problem for the owners if the employees use private information to make decisions consistent with their own self-interests but not consistent with the interests of the owners. The owners may try to reduce this control problem by installing management control systems which mitigate this asymmetry. One such particular procedure is participative budgeting, wherein an employee (who possesses private information) communicates some or all of this information to a superior who, in turn, uses this information in setting the budget (and associated performance standards) by which that employee is evaluated. Controversy currently exists about whether such communication is strictly valuable. In this study, I develop reasonable conditions under which communication can be strictly valuable in an economic organization. The development is provided in section 3. A related and even more fundamental economic controversy is the issue of whether strict gains can occur when asymmetries are intentionally created in economic organizations. In managerial accounting, such an event would correspond to providing an employee private access to a