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An offer you can refuse: the effects of transparency with endogenous conflict of interest

Mariya Teteryatnikova () and James Tremewan
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Mariya Teteryatnikova: http://www.univie.ac.at/Wirtschaftswissenschaften

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: This paper studies the e¤ects of transparency on information transmission and decision-making theoretically and experimentally. We develop a model in which a de- cision maker seeks the advice of a better-informed adviser. Before giving advice, the adviser may choose to accept a side payment from a third party, where accepting this payment binds the advisor to give a particular recommendation, which may or may not be dishonest. Without transparency, the decision maker learns only the recom- mendation of the adviser. With transparency, the decision maker learns in addition the decision of the adviser with respect to the side payment. Prior research has shown that transparency is either ine¤ective or harmful to decisionmakers? because con?icted advisers become more dishonest in their advice. The novelty of our model is that the con?ict of interest is endogeneous as the adviser can choose to decline the third-party payment. Our theoretical results predict that transparency is never harmful and may help decision makers. Our experimental results show that transparency improves the accuracy of decision making. However, we also observe that (i) while transparency clearly improves decision making when it is mandatory, the evidence in favor of a voluntary form of transparency is much weaker, and that (ii) the positive e¤ects of transparency decline over time.

JEL-codes: C72 C91 D82 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2016-03
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