What is the difference between the Efficiency Perspective and the Opportunistic Perspective of Positive Accounting Theory?

Answer 1

Within the efficiency perspective, researchers explain how various contracting mechanisms can be put in place to minimize the agency costs of the firm, that is, the costs associated with assigning decision making authority to the agent.

The efficiency perspective is often referred to as an ex ante perspective.

Ex-ante means before the fact - as it considers what mechanisms are put in place up front, with the objective of minimizing future agency and contracting costs.

The opportunistic perspective of PAT, takes as given the negotiated contractual arrangements of the firm and seeks to explain and predict certain opportunistic behaviors that will subsequently occur. Initially, the particular contractual arrangements might have been negotiated because they were considered to be most efficient in aligning the interests of the various individuals within the firm. However, it is not possible or efficient to write complete contracts that provide guidance on all accounting methods to be used in all circumstances - hence there will always be some scope for managers to opportunistic.

The opportunistic perspective is often referred to as an ex post perspective- ex post meaning after the fact - because it considers opportunistic action that could be undertaken once various contractual arrangements have been put in place.

Answer 2

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