Information in Hierarchies
AbstractWe 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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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 12086.
Length: 26 pages
Date of creation: Dec 2012
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Hierarchy; information concealment.;
Find related papers by 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 - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-22 (All new papers)
- NEP-CDM-2012-12-22 (Collective Decision-Making)
- NEP-CTA-2012-12-22 (Contract Theory & Applications)
- NEP-ORE-2012-12-22 (Operations Research)
- NEP-REG-2012-12-22 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
- Tirole, J., 1993.
"The Internal Organization of Government,"
93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Alexander Wagner, 2011. "Loyalty and competence in public agencies," Public Choice, Springer, vol. 146(1), pages 145-162, January.
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