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The Interaction between Decision and Control Problems and the Value of Information

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  • Anil Arya
  • Jonathan Glover
  • K. Sivaramakrishnan.

Abstract

We study a model of double moral hazard in which an information system is used in a decision problem (the principal can choose her own act based on the information) and a control problem (the principal can use the information to motivate the agent). An information system that provides more information is strictly preferred to an information system that provides less information if either of the problems is considered in isolation. However, less information, even though all information is public and contractible, can in fact be desirable from a profit maximization perspective because of an interaction between the two problems. Choosing an information system that provides less information serves as a substitute for commitment for the principal in our model. We also provide sufficient conditions for more information to be preferred, one of which is the complementarity of the agents act and the principal's act in the way they influence a joint measure of performance.

Suggested Citation

  • Anil Arya & Jonathan Glover & K. Sivaramakrishnan., "undated". "The Interaction between Decision and Control Problems and the Value of Information," Corporate Finance & Organizations _016, Ohio State University.
    • Handle: RePEc:wop:ohstfi:_016
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    File URL: http://www.cob.ohio-state.edu/~arya/ar.ps
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    References listed on IDEAS

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    Cited by:

    1. Anil Arya & Jonathan Glover & Pierre Jinghong Liang, 2004. "Intertemporal aggregation and incentives," European Accounting Review, Taylor & Francis Journals, vol. 13(4), pages 643-657.
    2. Iny Hwang & Suresh Radhakrishnan & Lixin (Nancy) Su, 2006. "Vendor Certification and Appraisal: Implications for Supplier Quality," Management Science, INFORMS, vol. 52(10), pages 1472-1482, October.
    3. Julia Nafziger & Heiner Schumacher, 2013. "Information Management and Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 140-163, March.
    4. Anil Arya & John Fellingham & Doug Schroeder, 2000. "Accounting Information, Aggregation, and Discriminant Analysis," Management Science, INFORMS, vol. 46(6), pages 790-806, June.

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