2017-11 , Institute of Economic Research, Hitotsubashi University
We studyworkers’ incentives of reporting problems within an OLG organization consisting of a subordinate and a manager. The subordinate is responsible for reporting a problem, and the manager is responsible for solving the reported problem. The subordinate has an incentive to conceal a detected problem since if he reports it but the manager is too lazy to solve the problem, the responsibility is transferred to the subordinate since he becomes a manager in the next period. We show that concealment is more likely either if subordinates are farsighted or the problem’s growth rate increases over time.