Department of Applied Mathematics & Physics, Kyoto University

Technical Report 2007-001 (January 10, 2007)

The Effects of Auditing in a Real Options Model
by Michi Nishihara and Takashi Shibata

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This paper investigates the owner's optimal contract with a bonus-incentive and audit when the owner delegates the investment timing decision to a manager with private information on an investment project. The solution includes discussion of the findings obtained in previous work in this area.