Smeal College of Business Analytical Models: ACCTG 597EPennsylvania State University Professor HuddartCourse OutlineSubject to change. This version October 29, 2014 at 3:51AMProblems should be turned in for grading on the day they areassigned.Part 1. Introduction1. Monday, August 25 IntroductionRead: Paul Krugman, 1997, The accidental theorist. Reprintedin Krugman, 1999, The Accidental Theorist and OtherDispatches from the Dismal Science, W. W. Norton &Company: New York.Hal R. Varian, 1997, How to build and economic modelin your spare time, Working paper, University ofCalifornia, Berkeley.John Fellingham, 2006, Is accounting an academic disci-pline? Plenary Address, 2006 Meetings of the Ameri-can Accounting Association, Washington DC.Joel S. Demski, 2005, Analytic modeling in managementaccounting research. Working paper, University ofFlorida.Blackwell Informativeness CriterionReference: Greek letters and pronunciationcSteven Huddart, 2001–2014. www.smeal.psu.edu/faculty/huddartACCTG 597E Course Outline2. Wednesday, August 27 BackgroundRead: Chapters XVI, XVII, and XVIII of Littleton, A.C. Ac-counting Evolution to 1900 American Institute Pub-lishing Company, 1933, 259–304.Anthony G. Hopwood, 2007, Whither Accounting Re-search? The Accounting Review 82:5 1365–1374.Pieters, R., and Baumgartner, H., 2002, Who talks towhom? Intra- and interdisciplinary communication ofeconomics journals, Journal of Economic Literature40:2, 483–509.Robert Bloomfield, 2010, Traditional vs. Behavioral Fi-nance, working paper, Cornell University.http://papers.ssrn.com/sol3/papers.cfm?abstract id=1596888Demski, Chapters 1, 2, and 3Problems: 2–6, 2–7, 2–8, 2–9, 3–10, and 3–143. Wednesday, September 3 Economic Behavior and the Accountant’s ArtSkim: Demski, Chapters 4, 5, 6, and 7Eva Labro and Mario Vanhoucke, October 2008, Diversityin Resource Consumption Patterns and Robustnessof Costing Systems to Errors, Management Science,54(10): 1715-1730.Read: Mathematica tips and pointers (There is both a Mathe-matica notebook and pdf file.)Richard P. O’Neill, Paul M. Sotkiewicz, Benjamin F.Hobbs, Michael H. Rothkopf, and William R. StewartJr., 2005, Efficient market-clearing prices in marketswith nonconvexities European Journal of OperationsResearch 164:1 269–285.Stefan Reichelstein and Anna Rohlfing-Bastian, 2013, Lev-elized Product Cost: Concept and Decision Relevance,Working paper.Question: What fraction of the economy is devoted to account-ing?Problems: 7–11, 7–14Supplemental problem: Code up and solve the Scarf (1994) problem that is de-scribed in the O’Neill et al. reading. Here are sometips: (1) Revise the statement of the problem soPage 2Course Outline ACCTG 597Ethat new variables, z1 and z2, represent the num-ber of Smokestack and High Tech plants, respectively.(2) The constraint that requires z1 and z2 to be in-tegers may be coded as follows: Element[z1 | z2,Integers].4. Monday, September 8 FramingRead: Demski, Chapter 8Problems: 8–2, 8–5, 8–6, 8–9, 8–10, 8–115. Wednesday, September 10 Uncertainty IRead: Demski, Chapter 9Problems: 9–11 (Note the typo. The problem should read: “U (w) =10 − exp(−0.001w)”.), 9–12, 9–14, 9–15Ingersoll, J. 1987, Theory of Financial Decision MakingRowman and Littlefield: Totowa, NJ pp. 19–44.Postulates of a Personalistic Theory of Decision. FromLeonard J. Savage, 1972, The Foundations of Statis-tics 2nd edition, Dover: New York.6. Monday, September 15 Uncertainty IIRead: Daniel Ellsberg. 1961. Risk, Ambiguity, and the SavageAxioms, The Quarterly Journal of Economics 75:4643–669.Judson Caskey. 2009. Information in Equity Marketswith Ambiguity-Averse Investors, Review of FinancialStudies 22:9 3595–3627.Radhika Lunawat, Kira Pronin, Jack Stecher, and Gao-qing Zhang. 2012. Fair Market Value Could HaveContributed to the Crash, Working paper, Carnegie-Mellon University.Sure-thing principle PowerpointTerms of LikelihoodProblems: 9–16, 9–17, 9–18, 9–19, 9–20Page 3ACCTG 597E Course OutlinePart 2. Contracting7. Wednesday, September 17 Strategic InteractionRead: Demski, Chapter 10Robert Forsythe, Russell Lundholm, and Thomas Rietz.1999. Cheap Talk, Fraud, and Adverse Selectionin Financial Markets: Some Experimental Evidence,Review of Financial Studies 12:3 482–518.Problems: 10–1, 10–6, 10–118. Monday, September 22 Strategic Interaction IIProblems: 10–12, 10–13, 10–14, 10–169. Wednesday, September 24 Performance EvaluationRead: Demski, Chapter 13Problems: 13–1, 13–2, 13–3, 13–4, 13–5, 13–6, 13–7, 13–8, 13–9, 13–1010. Monday, September 29 Performance Evaluation IIProblems: 13–13, 13–14, 13–15Tax planning and employee contracting problemTaxation of stock options problem problem.11. Wednesday, October 1 InformationRead: Demski, Chapter 14Kreps, Chapter 16Problems: 14–9, 14–10, 14–11, 14–12, 14–13, 14–1412. Monday, October 6 Task Allocation and LEN ModelsRead: Demski, Chapter 15Negative exponential utility functions and normally dis-tributed wealthSkim: Holmstrom, B., Milgrom, P., 1991, “Multi-Task Principal-Agent Analyses: Incentive Contracts, Asset Owner-ship, and Job Design,” Journal of Law, Economics,and Organization, 7:24–52.Problems: 15–4, 15–5, 15–6, 15–7, 15–9, 15–13Page 4Course Outline ACCTG 597E13. Wednesday, October 8 LEN Models IIRead: Robert Gibbons and Kevin J. Murphy, 1992, Optimalincentive contracts in the presence of career concerns:theory and evidence Journal of Political Economy100:3 468–505.Florin S¸abac, 2008, Dynamic incentives and retirement,Journal of Accounting & Economics 46:1 172–200.Problems: Accounting in Partnerships14. Monday, October 13 ControllabilityRead: Demski, Chapter 16Antle, R., Demski, J., 1988, The controllability principlein responsibility accounting, The Accounting Review,63:4 700–718.Problems: 16–7, 16–11, 16–1215. Wednesday, October 15 Equity CompensationProblems: Gamblers‘R’Us: Devote particular effort to questions 15through 19 of this problem. For these questions, youmay try to state and solve an agency problem.16. Monday, October 20 NO CLASS17. Wednesday, October 22 Exam 1 (8:00 a.m. to noon)18. Monday, October 27 CommunicationRead: Demski, Chapter 17Florin S¸abac and Joyce Tian, 2012, On the StewardshipValue of Communicating Post-Decision Information,working paper, University of AlbertaProblems: 17–4, 17–5, 17–13, 17–16Demski Ch. 17 typos: p. 416, fourth line from the