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Information Suppression in Multi-Agent Contracting

Authors/Editors: Feltham, Gerald A.
Hofmann, Christian
Published: 2012
Type: Articles in Refereed Journals (International)
ISBN/ISSN: 1380-6653
Published by: Review of Accounting Studies
Additional information: 17, Nr. 2, S. 254-278

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.