Information, Communication, and Preference (Mis)Alignment in Organizations

Abstract

As a decision maker, an organization's principal relies on workers to acquire costly information and on division managers to summarize it. This arrangement creates two agency problems: workers and managers have incentives to underprovide and to manipulate information, respectively. A degree of preference misalignment among the actors mitigates both problems simultaneously, to the principal's benefit. In particular, when reporting to a manager that holds a moderately opposing view, a worker will be motivated to acquire precise information to persuade the manager. Given sufficiently precise information, the manager's preferences coincide with the principal's, so truthful reporting becomes optimal for the manager.