Information Sharing and Incentives in Organizations

Abstract

We study an organization, consisting of a manager and a worker, whose success depends on its ability to estimate a payoff-relevant but unknown parameter. If the manager has private information about this parameter, she has an incentive to conceal it from the worker in order to motivate him to search for additional information. Due to a time-inconsistency problem, the manager conceals her information more often than if she could commit to an information sharing policy, but even a manager with commitment power shares her information less than would be efficient. We also show that managers who are more likely to get informed are more willing to share their information and that unless the manager’s information substantially improves the worker’s productivity, managerial and worker abilities are substitutes in the firm’s profit function. (JEL D21 D82, L23)