The Controllability Principle in Responsibility Accounting: Another Look

In this paper, we illustrate some subtleties related to responsibility accounting by studying two settings in which there are interactions among multiple control problems. In the first setting, two agents are involved first in team production (e.g., coming up with ideas) and then in related individual production (e.g., implementing the ideas). We provide conditions under which the agents are not held responsible for the team performance measure, despite each agent conditionally controlling it. The conditions ensure the incentive problem related to individual production is so severe it drives out any demand for the team performance measure. The team incentive problem is not binding because of the large “spillback” from the individual problem to the team problem.