The Mushroom Treatment: Information Suppression and Misrepresentation in Organizations

The “mushroom treatment� is a common metaphor for the practice of “keeping employees in the dark and feeding them a steady diet of bull manure.� We develop a model of this practice of information suppression and misrepresentation within organizations, wherein informed principals have an incentive to deliberately communicate degraded information (clipped “sales leads�) to their subordinates who perform critical tasks (“sales�) for the firm. We find that the principal can generally increase expected revenues by strategically controlling the timing of the information dissemination, and that a further increase may be possible by deliberately degrading information quality in a manner verifiable for the agent. This revenue improvement comes about because the principal’s credible precommitment to transfer manipulated information can induce first-best effort in situations where an accurate representation of the signal would promote shirking by the subordinates. The benefits of manipulating information in terms of exercising control and resolving incentive problems within a firm renders deliberate (and possibly costly) obfuscation a natural part of an organization’s internal communication structure. The value of an information system within an organization, therefore, will not be monotone in its transmission accuracy; enforcedly accurate information systems which prevent such manipulation entirely may have negative val