Incentives and the role of flexible production in facilitating information exchange

Flexible production gives a firm the ability to adjust operational decisions quickly in response to new information. Providing such agility is a commonly discussed advantage of technological innovation. This paper discusses another, less apparent, role of flexible technology. When a firm finds it difficult to elicit pertinent information from self-interested parties, operational flexibility can help foster information exchange. Roughly stated, flexible technology provides the firm a carrot to dangle to employees - an agent is torn between understating productivity to procure more favorable incentive terms and overstating productivity to convince the firm to expand the project and his role therein.