Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation
We present evidence that reassigning tasks among agents can alleviate moral hazard in communication. A rotation policy that routinely reassigns loan officers to borrowers of a commercial bank affects the officers' reporting behavior. When an officer anticipates rotation, reports are more accurate and contain more bad news about the borrower's repayment prospects. As a result, the rotation policy makes bank lending decisions more sensitive to officer reports. The threat of rotation improves communication because self-reporting bad news has a smaller negative effect on an officer's career prospects than bad news exposed by a successor.
Andrew Hertzberg, Jose M. Liberti, and Daniel Paravisini. "Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation" The Journal of Finance 65.3 (2010).
Available at: http://works.bepress.com/jose_liberti/3
Online Appendix to "Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation"