The wrong kind of transparency

Andrea Prat

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In a model of career concerns for experts, when is a principal hurt from observing more information about her agent? This paper introduces a distinction between information on the consequence of the agent's action and information directly on the agent's action. When the latter kind of information is available, the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori. This conformist behavior hurts the principal in two ways: the decision made by the agent is less likely to be the right one (discipline) and ex post it is more difficult to evaluate the agent's ability (sorting). The paper identifies a necessary and sufficient condition on the agent signal structure under which the principal bene.ts from committing not to observe the agent's action. The paper also shows the existence of strategic complementarities between information on action and information on consequence. The results on the distinction between action and consequence are then used to interpret existing disclosure policies in delegated portfolio management. In particular, they are consistent with hitherto puzzling evidence that mutual funds systematically overperform pension funds.

JEL-codes: D20 D82 H11 H70 L22 P11 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2004-05-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://eprints.lse.ac.uk/24712/ Open access version. (application/pdf)

Related works:
Journal Article: The Wrong Kind of Transparency (2005)
Working Paper: The Wrong Kind of Transparency (2003)
Working Paper: The Wrong Kind of Transparency (2002)
Working Paper: The wrong kind of transparency (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24712

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