Communication and Information Sharing in Teams
Rothenberg, Naomi R.
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This paper studies communication and information sharing in teams, where agents work under conditions of moral hazard in a correlated environment, production is jointly determined, and performance is evaluated jointly. One agent has private access to pre-decision productivity information, which can be shared with the uninformed agent either formally through the accounting system by directly communicating to the principal who then discloses the information, or informally by signaling through his action. The principal always prefers information sharing to no information sharing, even though communication does not result in reduced pay of the informed agent, but rather improves the uninformed agent’s productive choices. However, it may be less costly if both agents are uninformed, depending on the states of productivity and the mode information sharing. Further, neither type of information sharing dominates and the optimal mode of information sharing also depends on the states of productivity. With direct information sharing, the principal can tailor the uniformed agent’s payments to the actual state, just as if the information was public, but the informed agent earns more rents. The downside to indirect information sharing is that the principal remains uniformed, but the advantage is that the informed agent’s payment is lower due to the effect of the uninformed agent’s actions. The normally strong team incentives are decreased for the informed agent, which results in lower payments.
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