Working Paper: CEPR ID: DP16768
Authors: Ricardo Alonso; Odilon Camara
Abstract: We develop a theory of credible skepticism in organizations to explain the main trade-offs in organizing data generation, analysis and reporting. In our designer-agent-principal game, the designer selects the information privately observed by the agent who can misreport it at a cost, while the principal can audit the report. We study three organizational levers: tampering prevention, tampering detection and the allocation of the experimental-design task. We show that motivating informative experimentation while discouraging misreporting are often conflicting organizational goals. To incentivize experimentation, the principal foregoes a flawless tampering detection/prevention system and separates the tasks of experimental design and implementation.
Keywords: Strategic Experimentation; Bayesian Persuasion; Tampering; Organizational Design; Information Technology; Audit
JEL Codes: D8; D83; M10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing auditing intensity (M42) | Reducing the informativeness of the designer's experiment (C90) |
| Principal's choice to audit (M42) | Influencing the agent's behavior (C92) |
| Perfect audit (M42) | Lack of surplus for the principal (D52) |
| Imperfect audit (M42) | Balancing the trade-off between informativeness and tampering (D82) |
| Separating the design task from the analysis task (C38) | Preventing the designer from incurring tampering costs (D47) |
| Preventing the designer from incurring tampering costs (D47) | Leading to more informative experiments (C90) |
| Integrated tasks (Y80) | Economizing on tampering costs (D23) |
| Economizing on tampering costs (D23) | Diminishing the quality of the experiments (C90) |
| Promoting a moderate sense of mistrust (D80) | Fostering a culture of healthy skepticism (C92) |
| Fostering a culture of healthy skepticism (C92) | Ensuring the principal demands stronger evidence before acting on the agent's recommendations (D80) |