AES-UCSD Summer School in Theory and Structural Estimation (8/5/19-8/8/19)

The Accounting and Economics Society is pleased to announce the 2nd summer school in Theory and Structural Estimation, which will take place at the Rady School of management, UCSD, from Monday 8/5/19 to Thursday 8/8/19. The objective of the summer school is to teach accounting theory and methods to incorporate theory in empirical research, in a manner that is self-contained for researchers from various backgrounds. The course is best appreciated by students who have taken at least one course course in either microeconomics, game theory or in accounting theory, but does not assume prior knowledge in contracts, programming, or structural estimation.

Jon Glover (Columbia) and H. Sapra (Chicago) will be the resident scholars for the lectures and will cover the theory part. The event is part of a week-long event at UCSD, and will be followed by the yearly conference of the Junior Accounting Theory Conference on Friday 8/9/19, as well as an optional class trip on Saturday 8/10/19. Note that, this year, the annual meeting of the AAA will be in San Francisco, a short flight from San Diego (1.5h), with regular sessions starting on 8/12/19.

The course requires separate registration from the Junior Theory Conference. UCSD and the AES have agreed to provide facilities for the event and expenses for speakers, but we ask for a modest contribution of $200 for breakfast and lunches. Applications are now closed. If you receive an email, please follow the link to register for the conference.

If you have any questions, please do not hesitate to contact one of the organizers on the website or email Jeremy at jbertomeu@ucsd.edu.

We look forward to seeing you in San Diego!

Location

Rady School of Management

University of California San Diego

9500 Gilman Drive, La Jolla

CA 92093

Logistics and Accommodation

San Diego is about 1h30 to 2h from LA, and a short flight from San Francisco. It is also a great location for families during the summer.

We advise Estancia La Jolla Hotel & Spa, which is at walking distance from the school. We also recommend the Grande Colonial in La Jolla cove, which is a short 5 minute Uber/Lyft drive to the Rady School and is a more active area with cafes and restaurants. A third option great for families is the La Jolla Shores Beach and Tennis Club, also a 5 minute drive to Rady and walking distance to the La Jolla Shores beach area.

San Diego is not a large city and traffic is reasonable during the summer, so any location in La Jolla, UTC or Pacific Beach would be a short Uber drive.

Tentative Program

Monday, Aug. 5^th: Theory of Contracts

7:30-8:15: Breakfast, Cafe Ventana

8:30-10:30: Fundamentals of Agency Theory, J. Glover

In this section, we will review basics of being ‘in the know’ in agency theory, as well as various complexities that can arise, including the first-order approach, the first-best solution in certain unbounded problems and classic results in this literature. We will also discuss how to set up an agency problem with binary problems and within the risk-neutral limited-liability context.

10:30-10:45: Morning break

10:45-12:45: Relational Contracts, J. Glover

This session will explore dynamic incentives in the form of relational contracts, that is, non-contractual arrangements that can either discipline agents or induce collusion. We will explore together how to set up a problem with relational contracts, as well as standard frameworks in this literature. We will also review how relational contracts are likely to manifests in the empirical record.

1:00-2:00: Lunch, Cafe Ventana

2:00-3:30: Conservatism and Contracting, J. Glover

This session will explore interactions between asymmetries in measurement and the stewardship role of accounting. The research provides an agency-theoretic foundation to common practices that emphasize early recognition of losses, with models that can identify the factors that increase or decrease the desirability of conservatism.

3:45-4:45: A light introduction to Structural: Structural Estimation of Contracts, J. Bertomeu

Matlab code 1 (estimation), Matlab code 2 (simulation)

In this session, we will show how the agency model of Holmstrom (1979) can be estimated based on recent work by G. Gayle and R. Miller. We will numerically simulate the agency model, showing how the model can be computationally solved, and then estimate back the parameters of the model using three standard methods: Euler equations, maximum likelihood and simulated method of moments.

Optional: Matlab tutorial (use lessons 1-12, ~2 hours)

5:15-6:00: Optional Hike to Black’s Beach (Ho Chi Minh Trail)

Short (30 min.) hike, walking distance from Rady, ends at beautiful Black Beach.

Important: take regular or walking shoes, since it can be slippery and there may be wet areas. Bring a swimsuit if you want to go in the water (but it is cold even in the summer). There is a easy path and a moderately challenging path.

Tuesday, Aug. 6^th: Real Effects

7:30-8:15: Breakfast, Cafe Ventana

8:30-10:30: Introduction to Real Effects, H. Sapra

This session will examine how real effects arise from accounting disclosures and measurements, what are their consequences and what are the pitfalls of studies that ignore them?

10:30-10:45: Morning break

10:45-12:45: Imprecision in Accounting Measurements and Economic Consequences, H. Sapra

This session extends the prior session by investigating information about particular line items in financial statement. We will illustrate how more information about line items relating to particular decisions will endogenously affect the decisions.

1:00-2:00: Lunch, Cafe Ventana

2:00-3:30: The Disciplinary Role of Performance Reports, H. Sapra

This session studies the role of accounting information in environments in which the outsiders are less informed than management and investments may be used to signal private information. We will examine how additional accounting information helps alleviate the inefficiencies caused by investment signaling, and discuss the economic trade-offs implied by the theory.

3:45-5:00: Transparency in Financial Reporting. What are the economic trade-offs? H. Sapra

This session will synthetize the broad sets of trade-offs in the real effects research, offering some organizing principles about the trade-offs creating value for transparency or value for imprecision. Recent applications to fair value and bank accounting will also be considered.

5:00-sunset: Optional surf, drinks and Body Board, Pacific Beach

Hip area of San Diego, Sunset on the pier, Drinks and Dinner for anyone interested.

Wednesday, Aug. 7^th: Structural Estimation I

7:30-8:15: Breakfast, Cafe Ventana

8:30-10:00: Estimating Continuous Time Models: Introduction to Stochastic Calculus, I. Marinovic

This session will introduce students to the basics of using continuous-time to solve economic models, basic tools that can be re-applied across models and illustrate the benefits of continuous-time in terms of computability.

10:00-10:30 : Break

10:30-11:00: Estimating manager talent and turnover, I. Marinovic

This module will show how a simple continuous-time approach can be used to recover measures of managerial skill in a model with endogenous turnover.

11:00-11:15: Break

11:15-12:45: Estimating a Dynamic Contract, I. Marinovic

The objective of this session is to show how to empirically implement an estimation procedure for the dynamic contracting model of DeMarzo and Sannikov (2006) and we will discuss new perspectives in the estimation of dynamic contracts.

1:00-2:00: Lunch, Cafe Ventana

2:00-3:00: Recent Trends in Structural Estimation, Y. Xiao

An overview of how the structural approach has been used to address important questions across several streams of accounting literature with an interactive brainstorming of future potential questions suited to the approach.

3:00-3:15: Break

3:15-4:15: Hands-on Implementation of a Structural Model, Y. Xiao

We will work through the broad steps for estimation of a simple structural model in pseudo code.

4:15-4:30: Break

4:30-5:30: How to Leverage Training from Economics and Marketing for Addressing Accounting Questions, Y. Xiao

Some suggestions for which courses to take, challenges in applying other fields' approaches to accounting data and how to adapt the exposition of those approaches to conform with how accounting papers are presented.

6:00-sunset: (updated) La Jolla Cove (downtown La Jolla)

Sea lions and Pelicans, stop at Bobboi gelato, views of north beaches - easy walk along the coast. Carpool from Rady.

Thursday, Aug. 8^th: Structural Estimation II

7:30-8:15: Breakfast, Cafe Ventana

8:30-9:30: A practical overview of Structural by Example: Part I: Analyses and Methods, J. Bertomeu

In this session, we will review the type of analyses one can perform in a structural estimation paper, drawing from examples in the literatures types of additional analyses such as counter-factuals, targeted vs. untargeted moments, tests of alternative models, sub-samples for validation and exploration, cross-sectional analyses, welfare measurements, etc.

9:30-9:45: Break

9:45-10:45: A practical overview of Structural by Example: Part II: Dynamic Programming: J. Bertomeu

Matlab code 1 (DP with certainty), Model code 2 (DP with correlated shocks)

We will illustrate in this session how value functions are used to solve dynamic programs by 'brute force' and cover a numerical application involve solving a simple dynamic model.

10:45-11:00: Break

Optional: R Tutorial on Youtube, R tutorial PDF.

11:00-12:45: Estimating Dynamic Discrete Choice Models Part I: Principles, F. Zhou

This session will introduce students methods to estimate dynamic discrete choice models, that is, models when a single agent makes choices over time understanding the consequences of these choices on future choices and payoffs.

1:00-2:00: Lunch, Cafe Ventana

2:00-3:30: Estimating Dynamic Discrete Choice Models: Part II: Computation, F. Zhou

Dynamic Auditor Model notes, R estimation code

An overview of how the structural approach has been used to address important questions across several streams of accounting literature with an interactive brainstorming of future potential questions suited to the approach.

3:45-4:15: Ideas and Study Groups

With the help of various participants involved in structural estimation, we will break in various of groups of five students to brainstorm about potential ideas that may be approached with structural estimation. Think about a dataset you're familiar with - 2 to 5 primary variables you'd want to be part of a model, and we'll think about a theory that could be estimated.

4:15-4:30: Concluding remarks

7:30-9:00: San Diego Theater OB Playhouse, sign-up in advance on Monday.

Friday, Aug. 9^th: Jr. Accounting Conference at Rady, all day (separate event and must register separately)

Saturday, Aug. 10^th: Optional Class trip to Anza Borrego desert, departure around 4pm from Rady.

Beautiful 2h scenic drive: will arrange sign-in sheet to carpool on Monday). For those interested, great star-gazing in the evening (after 10pm).