Pension fund managers, certified public accountants and actuaries: A principal -agent analysis of information provision

We consider a model in which a principal (the pension fund administrator) employs agents (a certified public accountant and/or an actuary) to provide information about the state of the employee pension fund. In standard principal-agent models, increasing effort is associated with increasing output. In our model, increasing effort is associated with information structures that are more accurate. The administrator uses the information to take remedial action. We characterize the contracts and remedial action that result when the administrator contracts directly only with the actuary; when the administrator contracts directly with both the CPA and the actuary; and when the administrator contracts directly with the CPA, who then contracts directly with the actuary.;In this study, we have discussed the centralized contracting model and the decentralized contracting model. We conclude that if both agents have a higher unit cost of action and a higher reservation wage, then the principal's expected payoff in the decentralized contracting model is better than that in the centralized contracting model. On the other hand, if both agents have a lower unit cost of action and a lower reservation wage and the agent's risk attitude is more risk-averse, then the principal's expected payoff in the decentralized contracting model is worse than that in the centralized contracting model.;This study, in an agency theory context, sheds the light on the relationship between a pension fund administrator and his/her agent(s) and provides the pension administrator rules for using different contracting models in contracting with his/her agents.