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Information suppression in multi-agent contracting

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  • Gerald A. Feltham

    (University of British Columbia)

  • Christian Hofmann

    (LMU Munich)

Abstract

This paper examines the principal’s preferences over reporting systems in multi-agent settings. In multi-agent settings, the principal’s contract offer depends on the credibility of the agents’ commitment not to collude on the terms of the contract. If the agents can credibly rule out collusion, then the principal prefers that the agents observe all performance measures and she prefers an accounting system that releases detailed instead of aggregated information. To the contrary, when the principal cannot preclude the agents from writing side contracts, it can be efficient to suppress certain information signals for contracting purposes. Specifically, restricting the information dissemination within organizations or releasing aggregated instead of detailed information are two efficient avenues to suppress information.

Suggested Citation

  • Gerald A. Feltham & Christian Hofmann, 2012. "Information suppression in multi-agent contracting," Review of Accounting Studies, Springer, vol. 17(2), pages 254-278, June.
    • Handle: RePEc:spr:reaccs:v:17:y:2012:i:2:d:10.1007_s11142-011-9175-2
    DOI: 10.1007/s11142-011-9175-2
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