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The enforcement of mandatory disclosure rules

Matthias Dahm (), Paula González and Nicolás Porteiro

Journal of Public Economics, 2018, vol. 167, issue C, 21-32

Abstract: This paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm conceals information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Overall, stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that there are situations in which the relationship between the two monitoring instruments might be complementary. We also show that the welfare effects of mandatory disclosure depend on how it is enforced and that imperfect enforcement (in which some information remains concealed) might be optimal. In particular, the optimal fine might be smaller than the largest possible fine, even though the latter requires lower resource costs for inspections.

Keywords: Strategic information transmission; Scepticism; Confidence effect; Monitoring; Penalty; Fine; Sanction; Detection probability (search for similar items in EconPapers)
JEL-codes: D82 L15 (search for similar items in EconPapers)
Date: 2018
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Related works:
Working Paper: The Enforcement of Mandatory Disclosure Rules (2018) Downloads
Working Paper: The Enforcement of Mandatory Disclosure Rules (2016) Downloads
Working Paper: The Enforcement of Mandatory Disclosure Rules (2016) Downloads
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