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Synergy among Seemingly Independent Activities *
Author(s) -
Arya Anil
Publication year - 2002
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1506/26tj-40p4-lyev-93ck
Subject(s) - economic rent , incentive , adverse selection , convexity , stochastic game , microeconomics , production (economics) , economics , value (mathematics) , principal (computer security) , scale (ratio) , mathematics , computer science , financial economics , statistics , operating system , physics , quantum mechanics
“Synergy” implies that the value of activities undertaken jointly is greater than the sum of the values of the individual activities. Reasons cited for synergy include economies of scale, benefits due to vertical integration, and efficiency gains from shared inputs and skills. This paper shows that incentive (control) reasons alone can make activities synergistic. The result is derived in a model of adverse selection with risk‐neutral participants and linear technology. The linearity in the setting removes any obvious benefits to undertaking activities in tandem. Synergy gains are attributed to a convexity in the principal's payoff introduced by the activities' impact on the production versus rents trade‐off.