Fuzzy set theory in managerial contract analyses

Authors:
Hsuan-Chu Lin;Fang-Chi Lin;Tzy-Yih Hsiao;Yu-Cheng Lin
Affiliations:
Department of Accountancy, National Cheng Kung University, No. 1, University Road, Tainan City 701, Taiwan;Department of Accountancy, National Cheng Kung University, No. 1, University Road, Tainan City 701, Taiwan;Department of Accounting, Feng Chia University, No. 100 Wenhwa Road, Seatwen, Taichung 407, Taiwan;Department of Accounting, Feng Chia University, No. 100 Wenhwa Road, Seatwen, Taichung 407, Taiwan
Venue:
Expert Systems with Applications: An International Journal
Year:
2009

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Abstract

This paper provides a fuzzy solution to managerial contract analyses. The literature shows that due to the existence of information asymmetry, principals could not completely observe real actions of agents. They are actually making contractual decisions subjectively under vague conditions. In this paper, we adopt fuzzy theory to managerial contract analyses and find that it is more efficient than using binary probability methodologies. We also prove that considering the fuzzy factors into the managerial contract analyses scales down agency and production costs and therefore gives a better utility result to a firm.