Concealment as Responsibility Shifting in Overlapping Generations Organizations*

Abstract

Firms sometimes have problems with their products or management systems: problems that can lead to catastrophic events. However, while workers in these firms are often aware of these problems, they sometimes fail to report them to their superiors. This paper examines workers’ incentives for concealing problems within an overlapping generations organization consisting of a subordinate and a manager. The results reveal that concealment exhibits strategic complementarity across different generations, which can lead to multiple equilibria. Further, imposing punishment and rewards on managers may paradoxically increase the motivation for concealment (JEL D23, D82, M51).