IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v44y1998i9p1193-1204.html
   My bibliography  Save this article

The Effect of Property Rights and Audit Information Quality on Team Incentives for Inventory Reduction

Author

Listed:
  • Ramji Balakrishnan

    (College of Business, The University of Iowa, Iowa City, Iowa 52246)

  • Nandu J. Nagarajan

    (Katz School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania)

  • K. Sivaramakrishnan

    (GSIA, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

We analyze how limited contractibility and the informational quality of audits affect inventory levels and the optimality of individual versus team-based production. We use a two-period agency model in which contractibility is limited and agents meet a fixed delivery quota each period. A costly audit is triggered in any period if the delivery quota of output for the period is not met. We show that the informativeness of the audit plays a crucial role in resolving coordination problems between agents when they are organized as a team. When the audit is perfectly informative about agent productivity and inventory levels, team-based production is optimal. The team meets its quota even though, in equilibrium, the audit never takes place. If the audit is not perfectly informative about inventory levels, we show that team-based production typically induces agents to endogenously reduce inventory levels and could even result in agents adopting a zero-inventory policy. When the audit is completely uninformative, individual production is superior to team-based production.

Suggested Citation

  • Ramji Balakrishnan & Nandu J. Nagarajan & K. Sivaramakrishnan, 1998. "The Effect of Property Rights and Audit Information Quality on Team Incentives for Inventory Reduction," Management Science, INFORMS, vol. 44(9), pages 1193-1204, September.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:9:p:1193-1204
    DOI: 10.1287/mnsc.44.9.1193
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.44.9.1193
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.44.9.1193?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    2. Ma, Ching-to & Moore, John & Turnbull, Stephen, 1988. "Stopping agents from "cheating"," Journal of Economic Theory, Elsevier, vol. 46(2), pages 355-372, December.
    3. Melumad, Nahum & Mookherjee, Dilip & Reichelstein, Stefan, 1992. "A theory of responsibility centers," Journal of Accounting and Economics, Elsevier, vol. 15(4), pages 445-484, December.
    4. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-636, May.
    5. Saijo, Tatsuyoshi, 1988. "Strategy Space Reduction in Maskin's Theorem: Sufficient Conditions for Nash Implementation," Econometrica, Econometric Society, vol. 56(3), pages 693-700, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Venky Nagar & Madhav V. Rajan & Richard Saouma, 2009. "The Incentive Value of Inventory and Cross‐training in Modern Manufacturing," Journal of Accounting Research, Wiley Blackwell, vol. 47(4), pages 991-1025, September.
    2. Sprinkle, Geoffrey B., 2003. "Perspectives on experimental research in managerial accounting," Accounting, Organizations and Society, Elsevier, vol. 28(2-3), pages 287-318.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. ,, 2015. "Unraveling in a repeated moral hazard model with multiple agents," Theoretical Economics, Econometric Society, vol. 10(1), January.
    2. Barlo, Mehmet & Ayca, Ozdogan, 2012. "Team beats collusion," MPRA Paper 37449, University Library of Munich, Germany.
    3. Mehmet Barlo & Ayça Özdoğan, 2013. "The Optimality of Team Contracts," Games, MDPI, vol. 4(4), pages 1-20, November.
    4. Eyal Winter, 2009. "Incentive Reversal," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 133-147, August.
    5. Matthias Fahn & Hendrik Hakenes, 2019. "Teamwork as a Self-Disciplining Device," American Economic Journal: Microeconomics, American Economic Association, vol. 11(4), pages 1-32, November.
    6. Breton, Michele & St-Amour, Pascal & Vencatachellum, Desire, 2003. "Dynamic production teams with strategic behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 875-905, March.
    7. Fleckinger, Pierre, 2012. "Correlation and relative performance evaluation," Journal of Economic Theory, Elsevier, vol. 147(1), pages 93-117.
    8. Sarena F. Goodman & Lesley J. Turner, 2013. "The Design of Teacher Incentive Pay and Educational Outcomes: Evidence from the New York City Bonus Program," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 409-420.
    9. Andrea Blasco & Olivia S. Jung & Karim R. Lakhani & Michael Menietti, 2016. "Motivating Effort In Contributing to Public Goods Inside Organizations: Field Experimental Evidence," NBER Working Papers 22189, National Bureau of Economic Research, Inc.
    10. Breton, Michèle & St-Amour, Pascal & Vencatachellum, Désiré, 1998. "Birds of a Feather: Teams as a Screening Mechanism," Cahiers de recherche 9808, Université Laval - Département d'économique.
    11. Misty L. Loughry & Henry L. Tosi, 2008. "Performance Implications of Peer Monitoring," Organization Science, INFORMS, vol. 19(6), pages 876-890, December.
    12. Kjell Arne Brekke & Karine Nyborg & Mari Rege, 2007. "The Fear of Exclusion: Individual Effort when Group Formation is Endogenous," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 531-550, September.
    13. Matthew O. Jackson, 2001. "A crash course in implementation theory," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 18(4), pages 655-708.
    14. Bose, Arup & Pal, Debashis & Sappington, David E.M., 2010. "Asymmetric treatment of identical agents in teams," European Economic Review, Elsevier, vol. 54(7), pages 947-961, October.
    15. Carmen Bevia & Luis Corchon, "undated". "Rational Sabotage in Cooperative Production," UFAE and IAE Working Papers 541.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    16. Meyer, Margaret A. & Olsen, Trond E. & Torsvik, Gaute, 1996. "Limited intertemporal commitment and job design," Journal of Economic Behavior & Organization, Elsevier, vol. 31(3), pages 401-417, December.
    17. Brice Corgnet, 2010. "Team Formation and Self‐serving Biases," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 117-135, March.
    18. Jed Devaro & Fidan Ana Kurtulus, 2011. "What types of organizations benefit from teams, and how do they benefit?," UMASS Amherst Economics Working Papers 2011-16, University of Massachusetts Amherst, Department of Economics.
    19. Rafael Hortala-Vallve & Miguel Sanchez, 2005. "Hierarchic contracting," STICERD - Distributional Analysis Research Programme Papers 73, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    20. Tat Y. Chan & Jia Li & Lamar Pierce, 2014. "Compensation and Peer Effects in Competing Sales Teams," Management Science, INFORMS, vol. 60(8), pages 1965-1984, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:44:y:1998:i:9:p:1193-1204. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.