Abstract
This paper investigates the optimal design of linear compensation schemes that incentivize information acquisition and sharing in multi-divisional organizations. When the information shared between divisions is highly correlated and the information acquisition costs are not too high, the optimal strategy for the headquarters manager is to implement a compensation scheme that links the remuneration of each division to the performance of the other division. However, if the information is weakly correlated or the cost of acquisition is prohibitively high, the most effective incentive is to tie each manager's remuneration
solely to the performance of their own division.
solely to the performance of their own division.
| Original language | English |
|---|---|
| Number of pages | 36 |
| Journal | Journal of Political Economy Microeconomics |
| Early online date | 12 Oct 2023 |
| DOIs | |
| Publication status | E-pub ahead of print - 12 Oct 2023 |
Keywords / Materials (for Non-textual outputs)
- organizational economics
- contracts
- firms
- cheap talk
- information acquisition
- organizational design
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