Mandatory Versus Voluntary Disclosure in Markets with Informed and Uninformed Customers

Michael J. Fishman and Kathleen M. Hagerty

The Journal of Law, Economics, and Organization, 2003, vol. 19, issue 1, 45-63

Abstract: Numerous rules mandate the disclosure of sellers' information. This article analyzes two questions regarding disclosure: (i) Why wouldn't sellers voluntarily disclose their information? and (ii) Who gains and who loses with mandatory disclosure? Previous analyses assume that all customers are knowledgeable enough to understand a seller's disclosure, and a key result is that there is no role for mandatory disclosure. Either voluntary disclosure is forthcoming, or if it is not, no one prefers mandatory disclosure. We generalize the standard model by considering the case in which not all customers understand a seller's disclosure. We show that if the fraction of customers who can understand a disclosure is too low, voluntary disclosure may not be forthcoming. If so, mandatory disclosure benefits informed customers, is neutral for uninformed customers, and harms the seller. Our results suggest that we should find mandatory disclosure in markets where product information is relatively difficult to understand. Copyright 2003, Oxford University Press.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (108)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:19:y:2003:i:1:p:45-63

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().