This second volume is a direct outgrowth of the work Joel Demski and Jerry started in their 1978 Accounting Review paper, Economic Incentives in Budgetary Control Systems. This paper later received the AAA 1994 Seminal Contribution to Accounting Literature Award. Joel is referenced many times throughout this volume because he has produced a number of significant papers dealing with agency theory. Other co-authors of papers referenced in this volume are Hans Frimor, Christian Hofmann, Florin §abac, Martin Wu, and Jim Xie. We are also very thankful to Hans Frimor, Christian Hofmann, and Florin §abac for their detailed comments on recent drafts of several chapters. Earlier drafts were read by Alex Thevaranjan, and Martin Wu, as well as by three Ph.D. students who are currently finishing their dissertations: Anne Adithipyangkul, Yanmin Gao, and Yinghua Li. We are thankful to all who have contributed to the two volumes, and we are grateful to Peter' s secretary, Lene Holbaek, for her substantial editorial assistance. Jerry' s research on the second volume has been supported by funds from his Arthur Andersen Professorship, his Deloitte and Touche Professorship, and the Social Sciences and Humanities Research Council of Canada. Peter's research has been supported by funds from the Danish Association of Certified Public Accountants, and the Social Sciences Research Council of Denmark. Our wives. Else and June, have endured the long, and often consuming, process as we worked to complete a second volume of over 600 pages. We again thank them for their loving care and good humor. Also, Peter has three sons, Kasper, Esben, and Anders, who have had to share Peter's time with the book.