Optimal disclosure policy and undue diligence

David Andolfatto (), Aleksander Berentsen and Christopher Waller

Journal of Economic Theory, 2014, vol. 149, issue C, 128-152

Abstract: 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.

Keywords: Disclosure policy; Undue diligence; Risk-sharing; Intertemporal trade; Limited commitment (search for similar items in EconPapers)
JEL-codes: D82 D83 E61 G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Related works:
Working Paper: Optimal disclosure policy and undue diligence (2012)
Working Paper: Optimal disclosure policy and undue diligence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:149:y:2014:i:c:p:128-152

DOI: 10.1016/j.jet.2013.02.003

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