Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 407: Scapegoats and Transparency in Organizations

Björn Segendorff
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Björn Segendorff: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: A separating equilibrium in which competent (incompetent) leaders choose competent (incompetent) co-workers is investigated. An outside observer rewards the leader at good policy outcomes. The incompetent co-worker can, at bad outcomes, be used as scapegoat. By assumption, the leader may fail in blaming the scapegoat. Two different assumptions on the outside observer's information set are compared. If she cannot observe a failed attempt, the separating equilibrium exists only if two non-mimicking constraints are met. If she can observe a failed attempt, an additional constraint is added due to the possibility of partial mimicking.

Keywords: Separating equilibrium; competence; transparency; co-worker; blame

JEL-codes: C72; D72; D82; J33

20 pages, June 5, 2000

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