Information suppression in multi-agent contracting

Gerald A. Feltham and Christian Hofmann ()
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Gerald A. Feltham: University of British Columbia
Christian Hofmann: LMU Munich

Review of Accounting Studies, 2012, vol. 17, issue 2, No 2, 254-278

Abstract: 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.

Keywords: Incentives; Inter-agent negotiations; Multi-agent contracting; Performance evaluation; Relative performance evaluation; M41; M52; D82; D86; C7 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11142-011-9175-2

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