A firm’s information system consists of the procedures and rules that stipulate what information is collected, its accurateness, and how, when and to whom it is reported. The design and implementation of an information system typically belong to the responsibilities of top-executives. The main objective of this paper is to explore theoretically what kinds of information systems executives design. We examine how a firm’s information system depends on the strength of monetary incentives and on whether or not the firm has to rely on external parties. Our analysis also sheds light on the need for regulation and reveals potential side effects of regulation.