The Value of Transparency in Multidivisional Firms

Arbeitspapier

We study internal incentives, transparency and firm performance in multidivisional organizations. Two independent divisions of the same firm design internal incentives, and decide whether to publicly disclose their performances. In each division a risk-neutral principal deals with a risk-averse (exclusive) agent under moral hazard. Each agent exerts an unverifiable effort that creates a spillover on the effort cost of the other agent. We first study the determinants of the optimal principal-agent contract with and without performance transparency. Then, we show how effort spillovers affect the equilibrium communication behavior of each division. Both principals commit to disclose the performance of their agents in equilibrium when efforts are complements, while no communication is the only equilibrium outcome when efforts are substitutes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 26

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Asymmetric and Private Information; Mechanism Design ; Transactional Relationships; Contracts and Reputation; Networks
• Subject: Multidivisional Firms ; Transparency ; Moral Hazard

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Piccolo, Salvatore ; Tarantino, Emanuele ; Ursino, Giovanni
• Event: Veröffentlichung
• (who): Università Cattolica del Sacro Cuore, Dipartimento di Economia e Finanza (DISCE)
• (where): Milano
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/170623
• Last update: 10.03.2025, 11:43 AM CET