Discussion of Moral Hazard and Management Control in Just-in-Time Settings

Abstract

Alles, Datar, and Lambert (henceforth ADL) set out to explore the management control and motivational aspects of Just-in-Time (JIT) inventory production systems within the agency theory paradigm. Specifically, ADL rely on the linear principal-agent model developed by Holmstrdm and Milgrom [1987; 1991]. The contribution of this type of analysis is determined jointly by the technical novelty of the results and their successful application to a specific setting studied. The following discussion is intended to aid in the evaluation of these aspects of ADL's paper. In section 2 I give a brief summary of the model followed by a discussion of the results in section 3. Section 4 addresses whether the model and the results capture recognizable features of the specific setting studied, i.e., issues of external validity. Finally, some concluding remarks are provided in section 5.