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Synergy among Seemingly Independent Activities

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  • Anil Arya

Abstract

“Synergy†implies that the value of activities undertaken jointly is greater than the sum of the values of the individual activities. Reasons cited for synergy include economies of scale, benefits due to vertical integration, and efficiency gains from shared inputs and skills. This paper shows that incentive (control) reasons alone can make activities synergistic. The result is derived in a model of adverse selection with risk†neutral participants and linear technology. The linearity in the setting removes any obvious benefits to undertaking activities in tandem. Synergy gains are attributed to a convexity in the principal's payoff introduced by the activities' impact on the production versus rents trade†off.

Suggested Citation

  • Anil Arya, 2002. "Synergy among Seemingly Independent Activities," Contemporary Accounting Research, John Wiley & Sons, vol. 19(3), pages 349-363, September.
    • Handle: RePEc:wly:coacre:v:19:y:2002:i:3:p:349-363
    DOI: 10.1506/26TJ-40P4-LYEV-93CK
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