CREED Seminars Amsterdam

Speaker(s)
Peter Schwardmann (Ludwig Maximilian University of Munich, Germany)
Date
Thursday, 1 March 2018
Time
16:00-17:15
Venue
UvA - E-building, Roetersstraat 11, Room E0.14AmsterdamNetherlands
Contact person(s)
Jeroen van de Ven, Joël van der Weele

Voluntary information disclosure by privately informed firms is a key mechanism for reducing information asymmetries in markets. However, firms often have substantial flexibility in how they disclose their private information. We study theoretically and experimentally whether senders will exploit flexibility in disclosure to the detriment of receivers. On the one hand, flexibility allows senders to use vague messages in order to camouflage bad news and fool naive receivers. On the other hand, it incentivizes senders to disclose information that would be too unfavorable if it were communicated precisely. Both theory and experiment show that restricting senders to the use of precise messages is bad for sophisticated receivers, but good for naive receivers and overall information transmission. Our results suggest that there are likely to be redistributive consequences as well as gains in average consumer welfare from policies that restrict flexibility in disclosure. Joint with Marvin Deversi and Alessandro Ispano.