Chapter 6 focused on the problem of hidden action. Even when a manager knows what actions she wants from a group of subordinates, she can be hindered in her efforts to elicit those actions by an inability to sort out those efforts from the confounding effects of unknown random variables and of other team members' actions.

Holmstrom's solution to the problem of hidden action within teams is to impose a forcing contract – one that requires the desired team outcome and punishes every team member severely for any team member's shirking. While Holmstrom's joint forcing contract may be a theoretical solution to the problem of hidden action, it runs aground on the even more fundamental problem of hidden information. The primary problem is that managers require information in order to decide what outcomes they want to elicit from the forcing contract – and that information is generally hidden from them. Would it be profitable to adopt a new product line? What level of profits should be expected from each division? The answers to these and similar questions depend on information that is best known (or only known) to the subordinates themselves.