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Do Actions Speak Louder Than Words? Auditing, Disclosure, and Verification in Organizations

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Abstract

We study the relative performance of disclosure and auditing in organizations. An informed player chooses an action and sends a message to an uninformed player, who then chooses an action. We ask whether the uniformed player wants to commit to only observing the message (disclosure), or to keep the ability to observe the action of the informed player (auditing). The answer depends on the nature of the misalignment in the players' preferences. If the misalignment is large enough and systematic, disclosure will emerge in equilibrium. When the players' preferences make them akin to being each other's agent, auditing will prevail.

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  • Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2014. "Do Actions Speak Louder Than Words? Auditing, Disclosure, and Verification in Organizations," Working Papers gueconwpa~14-14-04, Georgetown University, Department of Economics, revised 13 Jun 2015.
    • Handle: RePEc:geo:guwopa:gueconwpa~14-14-04
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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