The teaching materials below are available in various formats (Word , PDF). If you have any comments or questions regarding the items herein you may E-mail me.
EXPERIMENTAL ACCOUNTING AND ECONOMICS INDEPENDENT STUDY
Tentative Course Outline
WEEK 1: Introduction (and Prisoner’s Dilemma)
Kachelmeier, S. and R. King. 2002. Using Laboratory Experiments to Evaluate Accounting Policy Issues. Accounting Horizons 16(3).
Sprinkle, G. 2003. Perspectives on experimental research in managerial accounting. Accounting, Organizations and Society 28.
The Vernon Smith paper below is tough reading. I have recommended we start with sections I and II only. We’ll see how that goes – if it goes okay we will read more later in the semester.
Smith, V. 2003. Constructivist and ecolological rationality in economics. American Economic Review Parts I & II: 465-83.
My notes on economic experiments:
Luft (as edited by PY). 2023. “Experimental Methods in Accounting” (An economics emphasis)
Cooper (as edited by PY). 2023. “Basics of Designing and Running an Economics Experiment”
Young, R. 2023. Notes on V. Smith’s “Economics in the Laboratory” (1994) and Rationality in Economics” Constructivist and Ecological Forms” (2010).
Materials to prepare:
Myerson. 1999. Brief notes on non-cooperative game theory and Nash equilibrium. pp. 1068-70.
Smith, V. 1982. Markets as economizers of information: Experimental examination of the ‘Hayek Hypothesis’
Smith, V. 2008. Rationality in Economics (Rationality, Markets, and Institutions 1 – preface and pp. 1-23)
Other materials:
Smith. 1994. Economics in the laboratory. Journal of Economic Perspectives 8 (1): 113-131.
Nassar, Sylvia. 1998. A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash. Simon and Schuster: New York, NY.
WEEK 2: Coordination and cooperation in one-shot and repeated encounters
Classroom games (PD, ULT, DICT)
Field, A. 2001. Prologue: The world’s first Prisoner’s Dilemma experiment. Unpublished manuscript.
Cooper-DeJong-Forsythe-Ross. 1996. Cooperation without reputation: Experimental evidence from Prisoner’s Dilemma games. Games and Economic Behavior 12: 187-218.
Schwartz-Young-Zvinakis. 2000. Reputation without repeated interaction: A role for public disclosures. Review of Accounting Studies.
Smith, V. 2008. Rationality in Economics (Rationality, Markets, and Institutions 2).
Other materials:
Andreoni-Miller. 1993. Rational cooperation in the finitely repeated Prisoner’s Dilemma: Experimental evidence. The Economic Journal 103: 570-585.
Camera-Casari. 2009. Cooperation among Strangers under the shadow of the future. American Economic Review.
Kreps-Milgrom-Roberts-Wilson. 1982. Rational cooperation in the finitely repeated Prisoners’ Dilemma. Journal of Economic Theory 27: 245-252.
WEEK 3: Voluntary disclosure in markets (do CAR paper first)
King-Wallin. 1991. Market-induced information disclosures: An experimental markets investigation. Contemporary Accounting Research 8 (1): 170-197.
Jung-Kwon. 1988. Disclosure when the market is unsure of information endowment of managers. Journal of Accounting Research 26 (1): 146-153.
King-Wallin. 1991. Voluntary disclosures when seller’s level of information is unknown. Journal of Accounting Research (29): 96-108.
Smith, V. 2008. Rationality in Economics (Impersonal Exchange: pp. 61-74).
Other materials:
Bloomfield-Libby. 1996. Market reactions to differentially available information in the laboratory. Journal of Accounting Research: 34(2): 183-207.
WEEK 4: Disclosure in bargaining games
Baiman-Lewis. 1989. An experimental testing the behavioral equivalence of strategically equivalent employment contracts. Journal of Accounting Research 27 (1): 1-20.
Berg-Coursey-Dickhaut. 1990. Experimental methods in accounting: A discussion of recurring issues. Contemporary Accounting Research. 6 (2-II): 825-49.
Schwartz-Wallin. 2002. Behavioral implications of information systems on disclosure fraud. Behavioral Research in Accounting 14: 197-221.
Smith, V. 2008. Rationality in Economics (Impersonal Exchange (cont.): pp. 74-93).
WEEK 5: Stewardship accounting
Dickhaut-McCabe. 1997. The behavioral foundations of stewardship accounting and a proposed program of research: What is accountability? Behavioral Research in Accounting (9): 60-87.
Evans-Hoffman-Rau. 1994. The accountability demand for information. Journal of Management Accounting Research 6: 24-42.
Dickhaut. Overview. Chapter in Perspectives on Academic Careers in Accounting: Essays in Honor of Thomas J. Burns: 98-102.
Smith, V. 2008. Rationality in Economics (Personal Exchange 9: 189-198).
WEEK 6: Bargaining games
In-class experiments (ULT, DICT)
https://www.youtube.com/watch?v=S0qjK3TWZE8 (Explain what the fellow in the brown shirt is trying to do here.)
Guth-Schmittberger-Schwarze. 1982. An experimental analysis of ultimatum bargaining. Journal of Economic Behavior and Organization 3: 367-388.
Forsythe-Horowitz-Savin-Sefton. 1994. Fairness in simple bargaining experiments. Games and Economic Behavior 6.
Cooper-DeJong-Forsythe-Ross. 1996. Communication in battle of the sexes games; Some experimental results. RAND Journal of Economics 20(4): 568-587.
Smith, V. 2008. Rationality in Economics (Personal Exchange 10: 199-227).
WEEK 7: Bargaining with asymmetric information
Mitzkewitz-Nagel. 1993. Experimental results on ultimatum games with incomplete information. International Journal of Game Theory 22: 171-198.
Rapoport-Sundali. 1996. Ultimatums in two-person bargaining with one-sided uncertainty: Offer games. International Journal of Game Theory 25: 475-494.
Denker-Schwartz-Ward-Young. 2014. Voluntary disclosure in bargaining: A research note. Management Accounting Research 25: 223-229.
Smith, V. 2008. Rationality in Economics (Personal Exchange 11: 234-244).
Other materials:
Hansen-Otley-Van der Stede. 2003. Practice developments in budgeting: An overview and research perspective Journal of Management Accounting Research 15: 95-116.
WEEK 8: Budgeting and negotiation with asymmetric information . . . of course
Fisher-Fredrickson-Peffer. 2000. Budgeting: An experimental investigation of the effects of negotiation. The Accounting Review 75 (1): 93-114.
Rankin-Schwartz-Young. 2003. Management control using nonbinding budgetary announcement. Journal of Management Accounting Research 15: 75-93.
Brown-Evans-Moser. 2009. Agency theory and participative budgeting experiments. Journal of Management Accounting Research.
Other materials:
Jensen. 2003. Paying people to lie: The truth about the budgeting process European Financial Management 9(3): 379-406.
WEEK 9: Honesty . . . or Fairness?
Evans-Hannan-Krishnan-Moser. 2001. Honesty in managerial reporting. The Accounting Review 76 (4): 537-559.
Rankin-Schwartz-Young. 2008. The effect of honesty and superior authority on budget proposals. The Accounting Review 83 (4): 1083-1099.
Larrick-Blount. 1997. The claiming effect: Why players are more generous in social dilemmas than in ultimatum games. Journal of Personality and Social Psychology 72(4), 810–25.
Smith, V. 2008. Rationality in Economics (Personal Exchange 12: 244-280).
WEEK 10: Trust and reciprocity
Gneezy. 2005. Deception: The role of consequences. The American Economic Review (March): 384-394.
Berg-Dickhaut-McCabe. 1995. Trust, reciprocity, and social history Games and Economic Behavior 10: 122-142.
Dickhaut-McCabe-Lunawat-Hubbard. 2008. Trust, reciprocity, and interpersonal history: Fool me once, shame on you, fool me twice, shame on me. University of Minnesota working paper.
Other materials:
Ortmann-Fitzgerald-Boeing. 1999. Trust, reciprocity, and social history: A re-examination. Experimental Economics 3: 81-100.
WEEK 11: Promises, Trust, and Trustworthiness
Charness and Dufwenburg. 2006. Promises and partnership Econometrica 74(6): 1579-1601.
Schwartz-Spires-Young. 2019. Why do people keep their promises? A further investigation. Experimental Economics, 22(2), 530-551.
Dixit-Nalebuff. 1991. Credible commitments, ch. 6 in Think Strategically (New York: NY): 142-167.
WEEK 12: Do Intentions Matter . . . and Why? I
Douthit- Schwartz-Stevens-Young. 2022. The effect of endogenous contract selection on budgetary slack. Journal of Management Accounting Research 34 (3): 99–118.
McCabe-Rigdon-Smith. 2003. Positive reciprocity and intentions in trust games. Journal of Economic Behavior & Organization 52: 267-275.
WEEK 13: Do Intentions Matter . . . and Why? II
Kuang-Moser. 2009. Reciprocity and the effectiveness of optimal agency contracts. The Accounting Review 84 ( 5): 1671–1694.
Rigdon. 2014. Trust and reciprocity in incentive contracting. University of Michigan working paper.
Liu-Meder-Schwartz-Young. 2022. Whither the hidden returns to control: A short research note. Managerial and Decision Economics 43(8): 3361-3369.
WEEK 14: Sabotage
Brunner-Ostermaier. 2019. Sabotage in Capital Budgeting…, Eur Acc Rev 28 (1): 71-100
Liu-Nikias- Schwartz-Young. 2023. Ration now or ration later. Working paper.
Larcker-Tayan. 2014. Corporate governance according to Charlees T. Munger. Stanford Closer Look Series (March 3): 1-6.
WEEK 15: Implications for organizations
Kreps. 1997. Intrinsic motivation and extrinsic incentives. The American Economic Review 87(2): 359-364.
Sunder. 2005. Minding our manners: Accounting as social norms. The British Accounting Review 37: 367-387.
Sunder. 2010. Adverse effects of uniform written reporting standards on accounting practice, education, and research. Journal of Accounting & Public Policy 29: 99-114.
Smith, V. 2008. Rationality in Economics (Order and Rationality in Method and Mind 15: 322-327).
Other materials:
Gregg, S. Forward to The Evidence of Things Not Seen (book authored by V. Smith).
PhD Seminar
Ball: What is the actual purpose of financial reporting?
Demski 2008. Where is the passion?
Sunder. 2009. Adverse effects of uniform written reporting standards on accounting practice
Demski Analytical Modeling
Demski. 2010. (The underdeveloped role of) science in accounting
Jackson. 2018. The role of theory on an age of design and big data
Edwards and Bell. 1961. The Theory and Measurent of Business Income
MSY. 2016. Bandits & Bounties: The intersection of information search & investment decisions
AAA: A Statement of Accounting Theory and Theory Acceptance
Rankin-Schwartz-Young. 2003. On the use of non-binding commitments . . .
Brown-Evans-Moser. 2009. Agency theory and participative budgeting
Ralph’s Partnership (PhD version)
Schwartz-Spires-Young. 2017. A teaching note on the controllability principle and responsibility accounting
Kuang-Moser. 2009. Reciprocity and the effectiveness of optimal agency contracts.
Christ. 2013. An experimental investigation of the Interactions among intentions, reciprocity and control.
Brunner-Ostermaier. 2019. Sabotage in capital budgeting: The effects of control and honesty on investment decisions. European Accounting Review.
LSY. 2020. Ration now or ration later: Endogenous contractual choice in participative budgeting
Nikias-Schwartz-Young. 2005. A note on the roles of aggregation and timeliness in management control
Schwartz-Young. 2013.A few stylized observations on accounting discretion.
Schwartz-Spires-Young. 2019. Why do people keep their promises? Experimental Economics 22 (2).
Arya-Glover-Sunder. 1998. Earnings management and the Revelation Principle. Review of Accounting Studies (3) (1).
Arya-Glover-Sunder. 2003. Are unmanaged earnings always better for shareholders? Accounting Horizons.
Demski-Sappington. 1999. Summarization with errors. Management Accounting Research
Lambert-Larcker. 1987. An Analysis of the use of Accounting and Market Measures of Performance in Exec Compensation Contracts. Journal of Accounting Research.
Zimmerman. 2001. Conjectures regarding empirical managerial accounting research. Journal of Accounting and Economics 32.
Evans-Hannan-Krishnan-Moser. 2001. Honesty in managerial reporting. The Accounting Review.
Gneezy. 2005. Deception: The role of consequences. AER.
HRT. 2006. The effect of information systems on honesty in managerial reporting: A behavioral perspective.
Rankin-Schwartz-Young. 2008. The effect of honesty and superior authority on budget proposals. Journal of Management Accounting Research.
Douthit-Stevens. 2015. The robustness of honesty effects on budget proposals when the superior has rejection authority.
Abdel-Rahim Liu Stevens. 2021. The Crowding-Out effect of non-financial controls on honest reporting: An experimental examination using the superior’s choice of an information system.
Miscellaneous management accounting materials
Varian How to Build a Model
Wilson. 1968. Syndicate Theory
Harris-Raviv. 1975.
Holmstrom. 1979.
Arya-Glover-Radhakrishnan. The controllability principle in responsibility accounting : Another look
Arya-Glover-Liang. 2004. Inter-temporal Aggregation. . .
Schwartz-Young-Zvinakis. 2000. Reputation without Repeated Interacation
Bohnet-Huck. 2004. Implications for Trust and Trustworthiness
Camera-Casari. 2009. Cooperation among Strangers under the Shadow of the Future
DLSY.2019. The hidden costs of not using discretionary controls
ACCTMIS 2300H – Honors Introduction to Accounting II (Spring 2020)
- Syllabus and Course Outline (for your perusal – still in process – official copy to be passed out in class)
- To better understand the philosophy of the course and appreciate its approach, below are comments from students about 2300H after they have taken 3300H
- Readings and assignments not in Demski text (PDF)
- On Thomas J. Burns (Bailey)
- On the study habits of today’s students
- “Advice for preparing and presenting assignments”
- Ralph’s Solver Training (rst 1 and 2)
- Template — Use this format for this spreadsheet assignment to be emailed to the TA’s. This format will be useful in subsequent problems, too.
- 3-D Plotter (helpful for some chapter 3 and 7 problems)
- Ball: “What is the actual purpose of financial reporting?”
- “The fundamental theorems of welfare economics”
- “Why Merton Miller remains misunderstood“
- Demski: “Enron et al.: A comment”
- Excerpt from “The Smartest Guys in the Room” about mark-to-market accounting
- Ralph’s Multi-period Normal Costing
- Ralph’s Multi-period Normal Costing Template – To be used for emailing your solution to the TA
- Ralph’s Unit Costs
- Ralph’s Variances
- Demski 7-15 Template
- Ralph’s Evil Twin
- Ralph’s Consistent Framing
- EV-CE-RP graph
- Ralph’s Taxes and Risky Decisions
- Ivar Kreuger (I): Ivar Kreuger’s contribution to U.S. financial reporting
- Ivar Kreuger (II): Ivar Kreuger and IMCO: A case of taxation of fictitious income
- Schwartz-Spires-Young “Bandits and Bounties”
- Ralph’s Learning by Doing
- Ralph’s Internal Rate of Return
- transfer pricing notes
- linear algebra online video lectures (courtesy of MIT)
- Least squares regression, projections, and cost estimation
- Arya-Fellingham-Glover “Some exceptions to the NPV Rule”
- Sharing Risk (Tutorial)
- Ralph’s Partnership Exercise
- Performance Evaluation – Did it cost too much?
- Ralph’s Adverse Selection
- Ralph’s Signaling Equilibrium
- Ralph’s HR Dilemma
- Larcker-Tayan “Corporate Governance According to Charles T. Munger”
- Merchant “How and why firms disregard the controllability principle”
- Reporting incentives in organizations
- Antle-Fellingham: “Information rents and preferences among information systems in a model of resource allocation”
- Decentralized Ralph
- A note on bundling budgets to achieve management control
- Meder, Schwartz, Spires and Young (2016) Subjective beliefs and management control”
- Jagannathan, Schwartz, Spizman and Young (2011) “Accounting, finance and adverse selection: Illustrations and applications”
- Sunder “Adverse effects of uniform written reporting standards on accounting practice, education, and research”
- Schwartz-Young “A few stylized observations on accounting discretion”
- DSWY – Voluntary Disclosure in a Bargaining Setting
ACCTMIS 3300H – Honors Cost Accounting (Fall 2017)
- 2019 Syllabus and Course Outline (tentative and unofficial)
- Readings and assignments not in Demski text:
- “Writing Advice for Business”
- Demski “Accounting and Economics”
- “A Caution Against Mixing Commerce and Academics”
- Demski “Is accounting an academic discipline?“
- Ball: “What is the actual purpose of financial reporting?”
- Noreen “Conditions under which activity-based cost systems provide relevant costs”
- Staubus “Activity costing: Twenty years on”
- Noreen-Soderstrom “Are overhead costs strictly proportional to activity?”
- Demski Exercise 7.3 template
- Maher-Marais “A field study on the limitations of Activity-Based Costing when Resources are provided on a joint and indivisible basis”
- Meder-Schwartz-Young “Bandits and Bounties”
- Glover “Have academic accountants and financial accounting standard setters traded places?”
- Meder-Schwartz-Spires-Young (2011) “Structured finance and mark-to-model accounting: A few simple illustrations”
- “Why Merton Miller remains misunderstood“
- Bol “Subjectivity in Compensation Contracts”
- “Credible Commitments”
- Sharing Risk (Tutorial)
- Ralph’s Partnership
- JSSY Jagannathan, Schwartz, Spizman and Young 2011. “Accounting, finance and adverse selection: Illustrations and applications”
- Ralph’s Signaling Equilibrium
- Antle-Demski “The controllability principle in responsibility accounting”
- Merchant “How and why firms disregard the controllability principle”
- SSY “A teaching note on the controllability principle and responsibility accounting”
- Lambert: “Executive Effort and Selection of Risky Projects”
- Ralph’s Delegation
- Gibbs-Merchant-Van der Stede-Vargus “Determinants and effects of subjectivity in incentives”
- Ralph’s Interacting Control Problems
- Ralph’s Multi-task
- Bruggen-Moers “The role of financial incentives and social incentives in multi-task settings”
- Ralph’s Limited Liability
- Nikias-Schwartz-Young ” A note on the roles of aggregation and delay in management control”
- Schwartz-Sundbury-Young “A note on the benefits of aggregate evaluation of budget proposals”
- Ralph’s Bundled Budgets
- Libby-Lipe (2010) “Beyond budgeting reconsidered . . .”
- Jensen (2001) “Corporate budgeting is broken – Let’s fix it!”
- Rankin-Schwartz-Young (2003) “On the use of non-binding commitments . . .”
- Kuang-Moser “Reciprocity and the effectiveness of optimal agency contracts”
- DDSY “The Hidden costs of not using discretionary controls”
- Evans et al. “Honesty in managerial reporting”
- Rankin-Schwartz-Young (2008) “The effect of honesty and superior authority on budget proposals”
- Sunder “Adverse effects of uniform written reporting standards on accounting practice, education, and research”
- Schwartz-Young “A few stylized observations on accounting discretion”
- Hales-Venkataraman “Curbing Earnings Management: Experimental Evidence on how Clawbacks Provisions and Board Monitoring Affect Managers’ use of Discretion”
- Demski: “Enron et al.: A comment”
- Holmstrom-Kaplan “The State of U.S. Corporate Governance: What’s Right and What’s Wrong?”
- DeChow-Skinner “Earnings management: Reconciling the views of accounting academics, practitioners, and regulators”
- Hemmer-Labro “Properties of Unmanaged Earnings” (abstract)
- Meder-Schwartz-Wu-Young “Bank runs and the accounting for illiquid assets in financial institutions”
- “Bigger than Enron” (youtube video)
- Fama “Agency problems and the theory of the firm”
- Bebchuk-Fried “Executive compensation as an agency problem”
- Holmstrom “Pay without performance”
- Jensen “Agency costs of free cash flow, corporate finance, and takeovers”
- Jensen “Agency costs of overvalued equity”
- Lo: “The Gordon Gecko Effect: The Role of Culture in the Financial Industry”
- “Barbarians at the Gate” (youtube video)
- Career Concerns Tutorial
- Schipper “Earnings Management”
- Healy-Wahlen “A reveiw of the earnings management literature and its implications for standard setting”
- Antle-Fellingham “Information rents and preferences among information systems in a model of resource allocation”
- Healy-Palepu “The Fall of Enron”
- Demski “Corporate conflict of interest”
- Lev “Corporate Earnings: Facts and Fiction”
- Yetman-Yetman “How does the incentive effect of the charitable deduction vary across charities?”
Miscellaneous