The Economics of Process Transparency

Abstract

We propose and analyze a novel framework to understand the role of non-instrumental information sharing in service operations management (OM), i.e., information shared by the firm not to affect consumers' actions, but to better manage their experience in the firm's process. The operations of the firm are organized as a process, consisting of a sequence of tasks, each of random duration. The firm shares real-time information with the consumer about the progress of their flow unit in the firm's process via a process tracker. The consumer is delay-sensitive and experiences gain-loss utility (loss-aversion and diminishing sensitivity) over time due to changes in beliefs about anticipated delay, as he awaits completion of the process. We analyze when providing such real-time progress information via process trackers help, or can possibly hurt a consumer. Our work draws upon the recent literature on belief-based/news utility in Economics. We find that in the presence of loss aversion alone, not sharing progress information is beneficial. In the presence of loss aversion and diminishing sensitivity, if low delays are likely, then sharing information is beneficial; otherwise, not sharing information is preferred. Our findings inform a service firm's post-sales transparency strategy.

Keywords: News Utility, Process Analysis, Progress Disclosure, Information Design, Interface of Operations Management and Information Systems

JEL Classification: M11, M30, D81