Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/170623
Authors: 
Piccolo, Salvatore
Tarantino, Emanuele
Ursino, Giovanni
Year of Publication: 
2015
Series/Report no.: 
Working Paper, Dipartimento di Economia e Finanza (DISCE), Università Cattolica del Sacro Cuore 26
Abstract: 
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.
Subjects: 
Multidivisional Firms
Transparency
Moral Hazard
JEL: 
D43
D82
L14
Document Type: 
Working Paper

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