Need to Know? On Information Systems in Firms

Tinbergen Institute Discussion Paper 2018-091/VII

48 Pages Posted: 12 Dec 2018

See all articles by Suzanne Bijkerk

Suzanne Bijkerk

Erasmus University Rotterdam (EUR)

Josse Delfgaauw

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute

Vladimir Karamychev

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute; Tinbergen Institute Rotterdam

Otto H. Swank

Erasmus University Rotterdam - Department of Economics; Tinbergen Institute Rotterdam (TIR)

Date Written: November 14, 2018

Abstract

In the context of firm decision-making, several motives for acquiring and conveying information exist. Information serves to make better decisions, to persuade, and to impress. In this paper, we study how these motives shape incentives to acquire and communicate information. We employ a cheap-talk model with information acquisition and communication by a firm's executive. The executive wants to accurately inform an internal decision-maker regarding the value of an opportunity, but has an incentive to overstate this value to persuade or impress external parties. We show that information acquisition and communication interact. The executive's impression and persuasion motives yield limited distortions in communication, if any. Instead, they reduce information acquisition. Furthermore, we find that for firms, transparent communication is a necessary evil. Transparency allows for influential communication to external parties, but constrains internal communication. Theoretically, we contribute by showing that the forward induction refinement excludes babbling as an equilibrium outcome if non-babbling equilibria exist.

Keywords: Information system, Information acquisition, Cheap-talk, Transparency, Firm behavior

JEL Classification: D21, D83

Suggested Citation

Bijkerk, Suzanne and Delfgaauw, Josse and Karamychev, Vladimir and Swank, Otto H., Need to Know? On Information Systems in Firms (November 14, 2018). Tinbergen Institute Discussion Paper 2018-091/VII, Available at SSRN: https://ssrn.com/abstract=3287919 or http://dx.doi.org/10.2139/ssrn.3287919

Suzanne Bijkerk (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Josse Delfgaauw

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Vladimir Karamychev

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Otto H. Swank

Erasmus University Rotterdam - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam (TIR)

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 4081448 (Phone)
+31 10 2120551 (Fax)

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