Transparency in Collaborative Projects

Abstract

Projects involving new product development often require tight collaboration among several firms. The success of such projects depends on all firms' committing resources and generating high quality outputs. We consider a setting with a firm and her collaborator engaging in a collaborative project and study the firm's decision to voluntarily improve the transparency of her quality output progress to her collaborator. To study this, we compare a reporting case, where the firm can report any quality (not necessarily truthfully) to the collaborator, with a revealing case, where the firm’s report is guaranteed to be truthful. We first develop normative predictions using game-theoretic models and find that both firms choose maximum quality (most efficient outcome) in equilibrium regardless of the transparency decision. From a behavioral perspective, we conjecture that while the most efficient outcome may be difficult to attain, transparency can promote a higher quality provision. We test this prediction with an experiment. We confirm that while the quality provision turns out to be significantly lower than the maximum level predicted by the theory, transparency can help promote a higher quality provision. In addition, we find that the truthfulness of transparency matters: both firms earn significantly higher profits when the firm reveals rather than when the firm just reports. In a follow-up experiment, we find that monitoring is an effective way to enforce truthfulness, as it makes the reporting firm choose a higher quality. Nevertheless, collaborators who forgo the option to monitor tend to be more trusting and more likely to provide high quality, ceteris paribus.

Keywords: behavioral operations management, experiments, reporting, revealing, monitoring

JEL Classification: C72, C91, D21