Monitor Reputation and Transparency

Ivan Marinovic and Martin Szydlowski
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Ivan Marinovic: Stanford University

No 125, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We study the disclosure policy of a regulator overseeing a monitor with reputation concerns, such as a bank or an auditor. The monitor faces a manager, who chooses how much to manipulate given the monitor’s reputation. Reputational incentives are strongest for intermediate reputations and uncertainty about the monitor is valuable. Instead of providing transparency, the regulator’s disclosure keeps the monitor’s reputation intermediate, even at the cost of diminished incentives. Beneficial schemes feature random delay. Commonly used ones, which feature immediate disclosure or fixed time delay, destroy reputational incentives. Surprisingly, the regulator discloses more aggressively when she has better enforcement tools.

Date: 2019
New Economics Papers: this item is included in nep-acc and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:125

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