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Negotiations between buyers and suppliers that require sharing cost details to identify profitable relationship specific investments often fail and result in hold-ups. Based on inequity aversion, strategic uncertainty, and risk dominance criteria, we expect negotiators to be more reluctant to share fine information than coarse, less detailed information, which suggests that fine information systems can exacerbate hold-ups. When negotiators share fine information they achieve more efficient bargaining agreements. However, we find that strategic concerns about inequitable outcomes (fear of opportunistic behavior) lead fewer negotiating pairs to share fine information (where inequitable outcomes can be larger) than coarse information (where inequitable outcomes are smaller). Our results demonstrate that information fineness leads negotiators to trade-off potential utility losses due to fairness considerations and potential monetary gains. Fewer (more) negotiators chose to share fine (coarse) information and thus minimize fairness based utility losses (maximize monetary gains).

The small number of full-scale adoptions of activity-based costing (ABC) coupled with ABC implementation failures have fueled a debate about the costs and benefits of ABC relative to more traditional volume-based costing (VBC) systems. ABC differs from VBC by focusing attention on activities and resources that are under the control of multiple workers. Reducing these costs often requires a coordinated effort. Therefore, incentives that motivate workers to cooperate are a prerequisite to successful process improvements based on ABC. Alternatively, when competitive incentives are combined with ABC, the result can be unexpected and negative. We examine how accounting cost system and incentive structure choices interact. We find that profits are highest when ABC is linked with group-based incentives, which provide high motivation to cooperate. In contrast, the lowest level of profit occurs when the same information-rich cost system, ABC, is coupled with tournament-based incentives. VBC, a cost system that provides a lower level of cost driver information, moderates the incentive effect. Thus, our results demonstrate that the effectiveness of ABC relative to traditional VBC is influenced by its interactive effect with incentive compensation.

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