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

Luca Anderlini, Dino Gerardi and Roger Lagunoff

Working Papers from Georgetown University, Department of Economics

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.

JEL-codes: C73 D63 D72 D74 H11 (search for similar items in EconPapers)
Pages: 29
Date: 2014-06-01, Revised 2015-06-13
New Economics Papers: this item is included in nep-acc, nep-cta and nep-mic
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