Concealment as Responsibility Shifting in Overlapping Generations Organizations

Firms sometimes have problems with their products or management systems, problems that can lead to catastrophic events. Often, workers in such firms are aware of these problems but 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. It shows that concealment is more likely if the problem's growth rate increases overtime. It also shows that, as time passes, subordinates grow more likely to conceal a problem even though the social loss from concealment increases. Further, imposing and rewards on managers may actually increase the motivation for concealment