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Optimal disclosure policy and undue diligence

Version 2 2024-06-13, 10:35
Version 1 2017-06-26, 14:53
journal contribution
posted on 2024-06-13, 10:35 authored by D Andolfatto, A Berentsen, C Waller
Information about asset quality is often not disclosed to asset markets. What principles determine when a financial regulator should disclose or withhold information? We explore this question using a risk-sharing model with intertemporal trade and limited commitment. Information about future asset returns is available to society, but legislation dictates whether this information is disclosed or not. In our environment, nondisclosure is generally desirable except when individuals can access hidden information – what we call undue diligence – at sufficiently low cost. Ironically, information disclosure is desirable only when individuals have a strong incentive to discover it for themselves.

History

Journal

Journal of Economic Theory

Volume

149

Pagination

128-152

Location

United States

ISSN

0022-0531

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2013 Elsevier

Publisher

Elsevier