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Information in Hierarchies

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  • Kouroche Vafaï

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UPD5 - Université Paris Descartes - Paris 5)

Abstract

We determine the optimal policy to cope with information concealment in a hierarchy where a principal relies on a supervisor to obtain verifiable information about an agent's output. Depending on the information he has obtained, the informed supervisor may either collude with the agent or with the principal and conceal information. The principal has the choice of four policies to cope with information concealment : it can prevent both types of information concealment, allow both of them, or prevent one of them and allow the other one. We characterize the incentive contracts in this environment and show that it is not optimal to allow information concealment, that is, the optimal policy of a hierarchy exposed to multiple types of information concealment is to prevent them all.

Suggested Citation

  • Kouroche Vafaï, 2012. "Information in Hierarchies," Post-Print halshs-00768904, HAL.
    • Handle: RePEc:hal:journl:halshs-00768904
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00768904
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    References listed on IDEAS

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