The Economics of Process Transparency

Abstract

Problem Definition: We propose a novel framework to understand the role of non-instrumental information disclosure in service operations management, i.e., information that is shared by the service provider (firm) not to affect consumers' actions, but to better manage their experience in the firm's process. In contrast to prior literature that exclusively considers the role of information sharing in influencing consumers' actions, our setting is one where consumers take no action -- our goal is to study how the consumer-waiting experience is influenced by non-instrumental information disclosure.

Academic/Practical Relevance: The process view of a firm and operational metrics for process analysis are basic ideas in OM. Our work in this paper is an attempt to understand the economics behind post-sales process transparency, i.e., how transparent should a firm design its process, as customers await the completion of their service.

Methodology: Our work draws upon the literature on belief-based utility in Economics. We model the interactions between a firm and a consumer, and how consumers react to good and bad news (the shape of the belief-based utility). The firm’s service process consists of a sequence of tasks, each of random duration. We analyze and compare commonly observed information-disclosure strategies in real-life processes.

Results and Managerial Implications: Interestingly, we find that complete transparency may be sub-optimal for the customer, even if available at no cost. We examine conditions under which less informative strategies such as opaque (where the service process becomes a black-box), current-task-identity (where the firm discloses the current task being performed) and next-task-information (where the firm discloses task duration at the beginning of each task) are preferred to complete transparency. As the number of tasks in the firm's process increases, the opaque strategy becomes more favorable. Consumer anxiety exacerbates the cost of waiting, and makes transparency more attractive.

Keywords: Belief-Based Utility, Delay Disclosure, Process Analysis, Gain-Loss Utility, Information Design

JEL Classification: M11, M30, D81