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Information in Hierarchies

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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

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  • Kouroche Vafaï, 2012. "Information in Hierarchies," Documents de travail du Centre d'Economie de la Sorbonne 12086, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:12086
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    More about this item

    Keywords

    Hierarchy; information concealment;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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