Regulating False Disclosure

Maarten Janssen and Santanu Roy

No 12450, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Firms communicate private information about product quality through a combination of pricing and disclosure where disclosure may be deliberately false. In a competitive setting, we examine the effect of regulation penalizing false disclosure. Stronger regulation reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it often creates incentives for excessive disclosure. Regulation is suboptimal unless disclosure itself is inexpensive and even in the latter case, only strong regulation is welfare improving. Weak regulation is always worse than no regulation. Even high quality firms suffer due to regulation.

Keywords: Disclosure; Regulation; Asymmetric information (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L15 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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