Management Accounting Research 25 (2014) 223–229
Contents lists available at ScienceDirect
Management Accounting Research
journal homepage: www.elsevier.com/locate/mar
Voluntary disclosure in a bargaining setting: A research note夽
Ulrike Denker a , Steven Schwartz b,c,∗ , Christopher Ward a , Richard Young d
a
b
c
d
Ernst and Young, New York, NY, United States
School of Management, Binghamton University, United States
Ernst and Young, Chicago, IL, United States
Fisher College of Business, The Ohio State University, United States
a r t i c l e
i n f o
Keywords:
Disclosure
Fairness
Mini-ultimatum game
a b s t r a c t
We conduct an experiment on voluntary disclosure within a simple bargaining setting
wherein a proposer must choose one of two possible offers and a responder chooses
whether to reject or accept that offer. In one treatment the proposer has the option to
disclose whether a fairer (more equal) offer was available relative to the one chosen. Under
standard economic theory, a responder will interpret no disclosure to mean the proposer’s
offer was the less fair alternative, and so a proposer who is making the fairer offer will disclose. In consequence, voluntary disclosure should perform as well as mandatory disclosure
in motivating proposers to make fair offers. Given their rejection rates, we find responders
properly infer the meaning of non-disclosure. However, despite the correct inferences made
by responders, proposers submit twice as many fair offers with mandatory disclosure than
with voluntary disclosure. Our results suggest that the choice of voluntary versus mandatory disclosure has consequences for resource allocation within the firm even though under
standard assumptions about preferences it should not.
© 2013 Elsevier Ltd. All rights reserved.
1. Introduction
In this note we present a bargaining experiment with
implications for intra-firm resource allocations. Intra-firm
allocations are often the result of bargaining outcomes;
examples include budgeting, transfer pricing and salary
adjustments. Bargaining becomes especially important
when contracts are incomplete or implicit.1 Executive
夽 We thank participants at the 2012 annual meetings of the American
Accounting Association and the Economic Science Association for helpful
comments. The authors are grateful for the financial support of The Ohio
State University Departments of Psychology and Accounting & MIS, and
research assistance from Ting Qu.
∗ Corresponding author at: School of Management, Binghamton University, United States. Tel.: +1 6077772102.
E-mail address: sschwart@binghamton.edu (S. Schwartz).
1
There are efficiency reasons to make contracts implicit rather than
explicit; some researchers have argued that organizations have competitive advantages over markets and courts in keeping track of contextual
details and history which are relevant in determining how to effectively
settle disputes (Glover, 2012).
1044-5005/$ – see front matter © 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.mar.2013.10.003
compensation is a ready example; corporate Boards of
Directors often have significant discretion over the allocation of the bonus pool among the firm’s various executives
(Murphy and Oyer, 2003).
Standard economic analyses of the bargaining process
usually assume individuals only care about their own
wealth. However, a robust set of observations has shown
that individuals care not only for their own wealth but have
preferences for distributional fairness (Fehr and Schmidt,
1999), honesty (Gneezy, 2005), and reciprocity (Fehr and
Gächter, 2000). Evidence from bargaining experiments in
an institutionally richer setting reveals similar results. For
example, Kachelmeier and Towry (2002) found that equity
concerns affected transfer prices in face-to-face negotiations. Also, Evans et al. (2001) and Zhang (2008) found that
an agent’s willingness to be honest was partially a function of how reporting would affect the allocation of wealth
between principal and agent. Finally, Charness (2004)
found that the extent to which an employee was willing
to work hard when offered a generous wage was affected
by whether the employer chose the wage or whether some
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U. Denker et al. / Management Accounting Research 25 (2014) 223–229
outside agency (such as a bingo draw) determined the
wage.
Because individuals care not only about their own
wealth but also the wealth of others, there are situations
where information about the allocation of wealth can play
a crucial role in bargaining outcomes. Notably, consider a
bargaining game where an individual (responder) knows
the amount offered but not the amount retained by the
person making the offer (proposer). Under standard theoretical assumptions, the size of the retained amount should
be irrelevant. However, research has shown that in private information bargaining games the less informed party
does worse than in the full information version (Rapoport
et al., 1996). Presumably, had lesser-informed responders
known how relatively small their shares were, they might
have rejected some offers. Further, fear of rejection would
have caused the better-informed proposers to increase
their offers. Consider also the experiment by Güth et al.
(2001), who find that principals give agents with different skill endowments more similar contracts when agents
could observe each other’s contracts than when contracts
were private information. Their interpretation is principals
fear differences in pay will cause costly resentment from
the lower-paid agent, even if that agent is less skilled.
We extend prior research on bargaining and information structure by allowing one bargainer to make his private
information known to another bargainer. That is, we study
the role of voluntary disclosure. We assume that any disclosures made must be truthful, perhaps due to the presence
of internal auditing, but that there is discretion regarding
whether to make a disclosure.2
Under the typical assumptions about markets, (credible) voluntary disclosure should be as effective as
mandatory disclosure in informing market participants.
The reasoning is straightforward. If a seller does not disclose his private information, potential buyers will assume
the worst possible state (Grossman, 1981; Milgrom, 1981).
Therefore, in equilibrium only the worst information is
withheld, and market participants’ beliefs are consistent.3
Extending this thinking to bargaining settings, where
fairness considerations often come to the foreground, voluntary disclosure should also be effective as mandatory
disclosure in conveying information – lack of disclosure
would be properly interpreted as an unfair offer. As a
practical example of the role of voluntary disclosure in bargaining settings, consider the recent labor dispute between
the National Football League and its players’ union. The
union requested that team owners provide audited financial statements to prove they needed financial relief. When
the owners were reluctant to comply, an NFL players’ union
representative was quoted as saying “There’s a level of distrust until they prove it – until they show us the books” (La
2
Our assumptions are similar to those in Penno (1990), who assumes
managers have a wide degree of discretion in making intra-firm reports,
but that reports are constrained to be truthful due to the internal audit
function.
3
Complications can arise in capital markets if the information is proprietary or if market participants are uncertain as to whether the firm has
received information (Dye, 1985, 1986; Wagenhofer, 1990). See King and
Wallin (1991a,b, 1995) for experimental evidence.
Conforna, 2011). The idea behind the players’ union position is simple: had the audited information indicated that
the owners’ offer was fair, it would have been disclosed.4
With respect to a richer institutional setting, consider
the study on fairness and transfer pricing by Luft and Libby
(1997). Respondents to a questionnaire indicated that if
they were managing the purchasing division they would
not expect the transferring division to make a large profit at
their expense. For example, if an item had an outside price
of $500 the purchasing division manager should be willing
to pay up to $500, regardless of the transferring division’s
marginal cost to manufacture. However, if the transferring division had a marginal cost to manufacture of $300,
the purchasing division manager might expect to only pay
$450, sharing some in the cost savings from internal manufacture with the transferring division. Kachelmeier and
Towry (2002) produce generally the same findings using
monetary incentives. In practice, a manufacturing division
surely collects marginal cost information (or should), so if a
manufacturing division manager decides not to make this
information available to the purchasing division, the purchasing division manager might assume that an “unfair”
decision is being hidden. Our hypotheses rely on similar
reasoning.
The basis for our investigation is an experiment using
the mini-ultimatum game (Bolton and Zwick, 1995), which
is very simple and has been employed in previous experiments to manipulate perceptions of fairness. A proposer
has two choices on how to allocate a sum of money. After
the proposer chooses one of the options the responder may
accept or reject the offer. Prior experiments provide evidence that responders consider the fairness of an offer in
terms of (1) how it allocates the surplus and (2) the alternative allocation that could have been offered (Brandts and
Sola, 2001; Falk et al., 2003).
We modify this game by introducing information asymmetry regarding the potential offers available to the
proposer. In each of two possible mini-ultimatum games
the proposer can offer (8,2), keeping 8 for herself and giving
2 to the responder. The alternative offer, chosen by nature
and observed only by the proposer, is either (5,5) or (10,0).
Conditional on the proposer offering (8,2), if the proposer
is able to communicate her alternative offer but chooses
not to, the responder should conclude it was (5,5). The reasoning is that had the alternative been (10,0) the proposer
surely would have made this known so as to demonstrate
that (8,2) was the “fairer” of the two possible offers, and
hence increase the chances the responder will accept the
offer.
In our control treatment, MAN (Mandatory Disclosure),
the responder always knows the alternative offer. That is,
there is no information asymmetry. In our manipulation,
VOL (Voluntary Disclosure), the proposer has the option,
but not the obligation, to disclose the alternative offer,
4
This situation generalizes to many employer–employee salary negotiations where the employer can make claims regarding the overall
profitability of company and how this impacts potential salary offers. The
employee would presumably want a verification of the employer claims
to judge the fairness of any salary offer.
U. Denker et al. / Management Accounting Research 25 (2014) 223–229
where disclosure is constrained to be truthful. To the extent
that responder behavior creates incentives for proposers to
offer fairer allocations, offers should be similar with voluntary and mandatory disclosure, because responders will
treat a choice of non-disclosure and an (8,2) offer as if the
alternative was a more equal allocation (5,5). Our results,
however, differ. While we do find that responders in VOL
on average properly interpret the choice of non-disclosure,
proposers in VOL make fairer offers much less frequently
than in MAN. Our results suggest that fairness may not be as
well served by voluntary disclosure as would be predicted
by the standard theory.
2. Design and hypotheses
Milgrom (1981) and Grossman (1981) theorize that in
market settings where credible disclosure is available but
not mandatory, all but the worst types have strict incentives to disclose because non-disclosure would be inferred
to mean the worst type. Therefore, the meaning of nondisclosure can be perfectly deduced. Our experiment is
designed to extend the Milgrom (1981) and Grossman
(1981) reasoning to fairness attributes in a bargaining setting.
The bargaining literature indicates that the fairness construct is complicated. What is fair is context specific. Fehr
and Schmidt (1999) construct a model wherein the only
attribute of relevance in bargaining outcomes is the final
distribution of wealth. In the model individuals have positive marginal utility for their own wealth and also for an
equal distribution of wealth, the latter being a representation of fairness. In contrast, Falk et al. (2008) go farther
in arguing that the distribution of wealth is not all that
matters. They posit that an offer that is lopsided in favor
of the proposer may be more palatable if the responder
understands it is the fairest offer that could have feasibly
been made. Experimental studies, such as Brandts and Sola
(2001) and Falk et al. (2003) have found support for this
theory. The underlying rationale behind these studies is
intentions matter. An offer that is as fair as possible is evidence of an intent to be fair, whereas an identical offer that
is not as fair as possible is evidence of intent to be unfair.
The analog to Milgrom (1981) and Grossman (1981) in a
bargaining setting where credible disclosure is available is
all but those making the least fair offer have incentives to
disclose this. Therefore, as in the market settings, the meaning of non-disclosure can be perfectly disclosed. Although
there is a significant and growing body of accounting
related research on fairness, most of that literature treats
the information regime as exogenous. Examples include
Kim et al. (2005), Libby (2001) and Matuszewski (2010). We
endogenize disclosure and examine how disclosure decisions about alternative feasible offers affects bargaining
outcomes.
In order to test our theory we use the mini-ultimatum
game where there are two potential offers. We administer two treatments of our experiment, MAN and VOL, in
which there is a sum of $10 US to be distributed between
a proposer and a responder. In both treatments one of the
proposer’s options is to offer an allocation of (8,2), and the
alternative offer is either (10,0) or (5,5), equally likely. If
225
the responder accepts, the experimenter implements the
distribution; if the responder rejects both proposer and
responder receive zero. In the MAN treatment, the responder is informed about the proposer’s alternative offer. In
the VOL treatment, proposers have the option of whether
to disclose the available alternative offer. Disclosures must
be truthful.
The experiment was conducted at a large Midwestern
university with student volunteers. Our use of student
volunteers seems appropriate in that the students were
truly volunteers and the theory tested does not rely upon
industry-specific expertise (Croson, 2005). Two sessions of
each treatment were run, with either 18 or 20 students
participating in a session. The total number of participants
in each treatment was 38: 19 proposers and 19 responders. Participants were presented with written instructions
upon arrival. Instructions were then read aloud by the
experimenters; a quiz was then administered to ensure
understanding. Participants kept their role as proposer or
responder throughout the experiment. Five rounds of the
game were played, using a turnpike design to mitigate contagion. Participants recorded their choices on paper and
were informed of the pair-members choice before moving
to the next round. Cash payments, based on accumulated
points, were made privately at the end of the session, and
averaged approximately $18.
We formulate six specific hypotheses regarding our
experiment. We begin with expectations on responder
behavior, because in ultimatum settings responder behavior is an important driver of proposer behavior, more so
than the reverse (Winter and Zamir, 2005). As discussed,
(8,2) offers should be more appealing to the responder
when accompanied by a disclosure that the alternative
was (10,0) than when accompanied by a disclosure that
the alternative was (5,5). Simply put, an offer that is
as fair as possible is more appealing than offer that is
not as fair as possible, even if the offers are nominally
identical.
Hypothesis 1. Responders in both treatments are more
likely to accept an offer of (8,2) when the alternative is disclosed to be (10,0) than when it has been disclosed to be
(5,5).
Continuing with responder behavior, any (8,2) offer
made without a disclosure should be rationally viewed as
coming from an alternative of (5,5), for had the alternative
been (10,0) the proposer would have been inclined to disclose it. Therefore, we would expect a responder to treat an
offer of (8,2) without a disclosure the same as an offer of
(8,2) with a known alternative of (5,5).
Hypothesis 2. Within VOL, responders are as likely to
accept an offer of (8,2) when the alternative is disclosed
to be (5,5) than when it is not disclosed.
As stated in Hypothesis 1, we expect offers of (8,2) to be
accepted less often when the alternative is disclosed to be
(5,5) than when the alternative is disclosed to be (10,0).
Further, if offers of (8,2) without disclosed alternatives
are treated identically to offers of (8,2) with disclosed
alternatives of (5,5), then a direct implication is that an offer
of (8,2) with a disclosed alternative of (10,0) will be more
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U. Denker et al. / Management Accounting Research 25 (2014) 223–229
likely to be accepted than an offer of (8,2) without a disclosure. We make this an explicit hypothesis because it is
possible (for reasons unforeseen) that either of the first two
hypotheses may not be supported. Finally, we expect this
relation to hold whether the disclosure of an alternative is
voluntary or mandatory.
Hypothesis 3a. Within VOL, responders are more likely
to accept an offer of (8,2) when the alternative is disclosed
to be (10,0) than when it is not disclosed.
Hypothesis 3b. Responders in MAN are more likely to
accept an offer of (8,2) when the alternative is (10,0) than
responders in VOL to whom the alternative has not been
disclosed.
The next hypothesis pertains to the proposer’s willingness to disclose the alternative offer. As noted above, the
responder should view an offer of (8,2) as fairer if the
proposer’s alternative was (10,0), than if the alternative
was (5,5). If the proposer anticipates this “framing effect”,
we would expect the proposer to choose to disclose with
greater relative frequency when the alternative was (10,0)
than when it was (5,5).
Hypothesis 4. Within VOL, conditional on an offer of (8,2)
proposers are more likely to disclose the alternative of
(10,0) than (5,5).
We can summarize the first four hypotheses as follows.
Responders are more likely to accept offers of (8,2) with
a disclosed of an alternative of (10,0) then either offers of
(8,2) with a disclosed alternative of (5,5) or offers of (8,2)
without a disclosed alternative (because the implied alternative will be (5,5)). Proposer disclosure behavior will be
consistent with these expectations. If (8,2) offers are only
viewed favorably by responders when the alternative is disclosed to be (10,0) and responders can infer undisclosed
alternatives are (5,5), then we expect more offers of (8,2)
when the alternative is (10,0) than when the alternative is
(5,5).
Hypothesis 5. Proposers are more likely to offer (8,2) if
the alternative is (10,0) than if it is (5,5).
Finally, given the above reasoning that a responder
should be able to infer the alternative offer when disclosure
is voluntary, and that responder treatment of undisclosed
alternative will be that same as disclosed alternatives
of (5,5), whether voluntary or mandatory, we expect no
differences in the frequency of (5,5) offers between the
treatments.
Hypothesis 6. The relative frequency of (5,5) offers will
be equal in VOL and MAN.
Although the rationale for our expectations is straightforward, behavior in bargaining settings is not always
predictable, as seen for example with the claiming effect
(Larrick and Blount, 1997) and the effect of earned property
rights (Hoffman et al., 1994). Therefore, empirical validation is important.
Table 1
Results from the experiment.
Panel A: frequency of (8,2) offers
Treatment
VOL
Alternative
(10,0)
(5,5)
(10,0)
MAN
(5,5)
Relative
frequency of
offer of (8,2)
1.00
n = 47
.71
n = 48
.96
n = 46
.37
n = 49
Panel B: disclosure choices in voluntary disclosure when (8,2) is
offered
Alternative
(10,0)
(5,5)
Relative
frequency of
disclosure
.98
n = 47
.21
n = 34
Panel C: acceptance rates of (8,2) offers
Treatment
VOL
Disclosure
None
(10,0)
(5,5)
(10,0)
MAN
(5,5)
Relative frequency
of acceptance
.68
n = 28
.94
n = 46
1.00
n=7
.86
n = 44
.72
n = 18
Panel
A:
The
relative
frequency
of
(8,2)
offers
is
partitioned
by
treat# of (8, 2) offers made/total # of offers made,
ment and alternative offer, with n = total # of offers made.
Panel B: The relative frequency that the alternative was disclosed in VOL
is # of disclosed alternatives/# of (8, 2) offers, partitioned by alternative
offer, with n = total # of (8,2) offers.
Panel C: The relative frequency of accepted (8,2) offers is
# of accepted (8, 2) offers/total # of (8, 2) offers, partitioned by treatment
and alternative offer, with n = total # of (8,2) offers.
3. Results
Hypothesis 1 predicts that in both VOL and MAN the
acceptance of offers of (8,2) would be greater when the disclosed alternative offer is (10,0) than when it is (5,5). Table 1
Panel C indicates that in VOL we do not find support for
Hypothesis 1. All seven of the (8,2) offers where the alternative was disclosed to be (5,5) were accepted, whereas 94%
were accepted when it was disclosed to be (10,0). However,
in MAN we do find support for Hypothesis 1: 86% of the (8,2)
offers were accepted conditional on an alternative of (10,0),
while 72% were accepted conditional on an alternative of
(5,5), which is significant at p = .07, using generalized estimating equations to control for lack of independence for
observations from the same participant.5
Hypothesis 2 addresses the response to non-disclosure.
Specifically, an offer of (8,2) combined with non-disclosure
should be an indicator that the alternative was (5,5), implying the proposer could have been fairer. However, Table 1
5
For within-treatment hypotheses, if there is a full set (or almost a
full set) of matched pairs available, the tests are paired t-tests where
each participant counts as a single independent observation. However,
if there are a significant number of incomplete pairs, the generalized
estimating equations of approach of Zeger and Liang (1986) is used to control for multiple observations from the same participant, operationalized
using the GENMOD procedure in SAS. For between treatment hypotheses, a two-sample t-test is used where each participant counts as a single
independent observation. p-Values for all hypothesis tests are one-sided,
except where noted.
U. Denker et al. / Management Accounting Research 25 (2014) 223–229
Panel C shows that acceptance of offers of (8,2) without
a disclosure in VOL seems considerably lower (68%), than
when an alternative of (5,5) is disclosed (100%).6 Given the
small sample size of voluntarily disclosed (5,5) alternatives
when (8,2) is offered (n = 7), it is difficult to draw any
conclusions.7 Perhaps responders in VOL were rewarding
proposers for their honesty, in the same spirit as Forehand
and Grier (2003). Further experimentation would be necessary to shed more light on this unexpected result.
Hypotheses 3a and 3b further address the response to
non-disclosure. We expected non-disclosure to be treated
by responders as a disclosure of an alternative of (5,5).
Indeed, of the 28 undisclosed alternatives, 27 of them were
(5,5). The difference between acceptance rates for voluntary disclosure of (10,0) in VOL, 94%, and non-disclosure in
VOL, 68%, is significant at p < .01, using generalized estimating equations. Similarly, the difference between acceptance
rates for non-disclosure in VOL, 68%, and mandatory disclosure of (10,0) in MAN, 86%, is significant at p = .02 using
a two-sample t-test. Overall, these results indicate that
responders believe that if a proposer offers (8,2) and had
an alternative of (10,0), he would have disclosed this, presumably to demonstrate he was being as fair as possible.
Hypothesis 4 deals with proposers’ disclosure choices.
It predicts that conditional on an offer of (8,2), the relative
frequency of disclosure in VOL is higher when the alternative is (10,0) than when the alternative is (5,5). Table 1 Panel
B displays the disclosure behavior of proposers in VOL. The
difference, 98% for an alternative of (10,0) versus 21% for
an alternative of (5,5), is significant at p < .01 using a paired
t-test, providing support for Hypothesis 4.
Hypothesis 5 addresses with proposers’ offers. Table 1
Panel A illustrates that, as predicted, in each treatment (8,2)
is offered more frequently when the alternative is (10,0)
than when the alternative is (5,5). For example, in MAN an
offer of (8,2) was made in 96% of the cases where the alternative was (10,0) but in only 37% percent of the cases where
the alternative was (5,5). The difference in frequency is significant (p < .01) using a paired t-test, providing support for
Hypothesis 1.8
The above results regarding Hypotheses 1–5 are generally consistent with our expectations, with the exception
of the high acceptance rate of (8,2) offers when an alternative of (5,5) is voluntarily disclosed. More importantly,
the acceptance rate for (8,2) offers (68%) is almost identical when proposers choose not to disclose as compared
to when they are forced to disclose the alternative is (5,5)
(72%). This suggests that responders properly infer the
6
Both Brandts and Sola (2001) and Falk et al. (2003) have full disclosure settings with payoffs equivalent to the (5,5) sub-game. Brandts and
Sola report frequency of rejection of the (8,2) equal to 17% while Falk
et al. report frequency of the rejection of the (8,2) offer equal to 44%.
Therefore our observed rejection rate of 28% in the Mandatory Disclosure treatment appears reasonable. Interestingly the observed frequency
of rejection of the (8,2) offer in the (5,5) sub-game in both the Brandts and
Sola (2001) experiment and our experiment indicates that the proposer
would maximize earnings with an (8,2) offer rather than a (5,5) offer.
7
The GENMOD procedure described in footnote 5 failed to produce a
p-value.
8
The difference within VOL alone is also significant at p < 0.01 using a
paired t-test.
227
meaning of non-disclosure, which is the transcending idea
in the theoretical literature (Grossman, 1981; Milgrom,
1981) as applied to our bargaining setting. Therefore, we
would expect voluntary disclosure is as effective as mandatory disclosure in promoting fairness. In fact, this is our
rationale for Hypothesis 6, which conjectures that the frequency of (5,5) offers would be the same in MAN and VOL.
It is rather surprising then that (5,5) offers are made more
than twice as frequently in MAN as in VOL – 65% versus 29%.
This difference is significant at p = .02 (two-tailed), using a
two-sample t-test.
In order to put our finding regarding the frequency of
fair offers into perspective, we compare our results to the
reported results of similar experiments. Both Brandts and
Sola (2001) and Falk et al. (2003) implemented a full disclosure version of our game. Brandts and Sola found that (5,5)
offers were made in 54% of the their observations, while
Falk et al. found that (5,5) offers were made in 69% of their
observations. Our result within the mandatory disclosure
treatment is similar: when possible, 65% of offers were fair.
However, when possible, only 29% of offers were fair in voluntary disclosure. Given our replication of previous results
that imposed disclosure, we are more confident that it is
the presence of voluntary disclosure that is causing some
of the deviations from prior experimentation. We discuss
a possible reason for the effect of voluntary disclosure on
fair offers in the next section.
4. Discussion and conclusion
Experiments on managerial accounting and intra-firm
resource allocation have tended to manipulate either
incentive structures (including negotiation protocol and
bargaining power) or information regime. Some experiments falling in the former classification include Waller
(1988), Fisher et al. (2000), Evans et al. (2001), Coletti
et al. (2005) and Rankin et al. (2008). Some experiments in
the latter category include Young (1985), Stevens (2002),
Hannan et al. (2006) and Nikias et al. (2009). Our experiment falls in that part of the literature that studies the effect
of information regime.
We manipulate whether proposers, who offer a split
of wealth, must disclose the alternative split not offered,
or have a choice on disclosure. Hence, within a bargaining setting, we study, two information regimes; mandatory
disclosure and voluntary disclosure. We find that responders (correctly) see through the absence of disclosure and
treat it as if a less fair offer than possible was made. Despite
this, proposers, when given the choice on disclosure, make
fewer fair offers than when disclosures are mandatory, and
accompany the less fair offers with lack of disclosure. There
are two possible explanations. The first is that with enough
experience, proposers will learn that the meaning of nondisclosure is perfectly inferred by responders and act like
proposers in the mandatory disclosure treatment. Even if
this explanation holds, many intra-firm interactions are of
limited durations and so the study of early repetitions is
interesting. The second explanation, discussed below, is
related to the idea of image management.
One of the more robust findings from experiments on
information regime is that individuals are less willing to lie
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U. Denker et al. / Management Accounting Research 25 (2014) 223–229
(up to a point), the more obvious their lies become (Young,
1985; Chow et al., 1988; Hannan et al., 2006). A related
result is found in Irlenbusch and Sliwka (2005), wherein
trustees in a gift-exchange game condition their responses
less on the size of the gift when the trustor cannot perfectly infer their action than when they can. The idea linking
these studies is that the less an individual’s actions are
observable, the less that individual adheres to social norms.
Hannan et al. (2006) consider this a form of image management, where individuals do not want to be detected
failing to adhere to social norms and will take advantage
of noisy disclosure to hide their actions. Conceivably, proposers using voluntary disclosure may view non-disclosure
as enough of a veil to hide their unfair action.
The strength of our design resides in (1) the comparability to earlier experiments, namely Brandts and Sola (2001)
and Falk et al. (2003), (2) the straight-forward predictions
derived from standard agency analysis, as recommended
in Brown et al. (2009), and (3) the transparency to studentparticipants. However there are also important limitations.
We only consider one-sided information asymmetry. In
many intra-firm bargaining situations both parties have
private information. Also, we consider a very limited negotiation protocol, with only a single, take-it-or-leave-it offer.
Finally, we implicitly consider only perfect, costless verification. Future studies, which both increase the length of the
experiment and add post experiment questionnaires, may
help distinguish between our proposed explanations for
the decrease in fair offers found with voluntary disclosure.
Future experimentation may also explore each of the limitations described above by expanding our basic setting. For
example, an experiment may feature a responder with an
outside option that is private information as well as a proposer with private information on proposal alternatives.
Should our findings be robust to future experimentation, it may speak to why some disclosures are mandated.
Lack of fairness, even when negotiations are viewed as a
zero sum game, might in some circumstances have negative repercussions, such as difficult-to-detect retaliation
against the firm.9 In such cases unfair outcomes should be
avoided, at least if the cost of doing so is low.
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9
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