Optimal information disclosure and market outcomes

Hugo Hopenhayn () and Maryam Saeedi ()
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Hugo Hopenhayn: Department of Economics, UCLA
Maryam Saeedi: Tepper Business School, Carnegie Mellon University

Theoretical Economics, 2023, vol. 18, issue 4

Abstract: This paper addresses two central questions in markets with adverse selection: How does information impact the welfare of market participants (sellers and buyers)? Also, relatedly, what is the optimal information disclosure policy and how is it affected by the planner’s relative welfare weight on sellers’ surplus versus consumers’ surplus? We find that as a result of improved information, prices become more strongly associated with the true quality of sellers and thus more dispersed. This will result in higher total surplus. Furthermore, we find that better information has opposing welfare effects on consumers and producers that could lead to limited disclosure depending on the social objective and market characteristics.

Keywords: Adverse selection; information design; consumer surplus; producer surplus (search for similar items in EconPapers)
JEL-codes: D21 D47 D60 D82 L11 (search for similar items in EconPapers)
Date: 2023-11-09
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