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Information Sharing between Vertical Hierarchies

When do principals independently choose to share the information obtained from their privately informed agents? Information sharing affects contracting within competing organizations and induces agents’ strategies to be correlated through the distortions imposed by principals to obtain information. We show that the incentives to share information depend on the nature of upstream externalities between principals and the correlation of agents’ information. With small externalities, principals share information when externalities and correlation have opposite signs, and do not share information when externalities and correlation have the same sign. In this second case, principals face a prisoners’ dilemma since they obtain higher profits by sharing information.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 322.

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Date of creation: 03 Oct 2012
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Publication status: Published in Games and Economic Behavior, 2013, vol. 79, pp. 201–222
Handle: RePEc:sef:csefwp:322
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