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When mandatory disclosure hurts: Expert advice and conflicting interests

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  • Li, Ming
  • Madarász, Kristóf

Abstract

We study the quality of advice that an informed and biased expert gives to an uninformed decision maker. We compare two scenarios: mandatory disclosure of the bias and nondisclosure, where information about the bias can only be revealed through cheap-talk. We find that in many scenarios nondisclosure allows for higher welfare for both parties. Hiding the bias allows for more precise communication for the more biased type and, if different types are biased in different directions, may allow for the same for the less biased type. We identify contexts where equilibrium revelation allows but mandatory disclosure prevents meaningful communication.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 139 (2008)
Issue (Month): 1 (March)
Pages: 47-74

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Handle: RePEc:eee:jetheo:v:139:y:2008:i:1:p:47-74

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Web page: http://www.elsevier.com/locate/inca/622869

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Cited by:
  1. Archishman Chakraborty & Rick Harbaugh, 2006. "Persuasion by Cheap Talk," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2006-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy, revised Oct 2009.
  2. Goltsman, Maria & Pavlov, Gregory, 2011. "How to talk to multiple audiences," Games and Economic Behavior, Elsevier, vol. 72(1), pages 100-122, May.
  3. Mechtenberg, Lydia & Münster, Johannes, 2010. "A strategic mediator who is biased into the same direction as the expert can improve information transmission," Discussion Papers, Research Unit: Market Behavior SP II 2010-19, Social Science Research Center Berlin (WZB).
  4. Frédéric Loss & Estelle Malavolti & Thibaud Vergé, 2013. "Communication and Binary Decisions: Is it Better to Communicate?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 169(3), pages 451-467, September.
  5. Ismayilov, Huseyn & Potters, Jan, 2013. "Disclosing advisor's interests neither hurts nor helps," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 314-320.
  6. Jindapon, Paan & Oyarzun, Carlos, 2013. "Persuasive communication when the sender's incentives are uncertain," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 111-125.
  7. Sascha Behnk & Iván Barreda-Tarrazona & Aurora García-Gallego, 2012. "Reducing deception through subsequent transparency - An experimental investigation," Working Papers, Economics Department, Universitat Jaume I, Castellón (Spain) 2012/14, Economics Department, Universitat Jaume I, Castellón (Spain).
  8. Daniel Stone, 2011. "A signal-jamming model of persuasion: interest group funded policy research," Social Choice and Welfare, Springer, Springer, vol. 37(3), pages 397-424, September.
  9. Ambrus, Attila & Azevedo, Eduardo M. & Kamada, Yuichiro & Takagi, Yuki, 2013. "Legislative committees as information intermediaries: A unified theory of committee selection and amendment rules," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 103-115.
  10. Rantakari, Heikki, 2014. "A simple model of project selection with strategic communication and uncertain motives," Journal of Economic Behavior & Organization, Elsevier, vol. 102(C), pages 14-42.
  11. Wonsuk Chung & Rick Harbaugh, 2012. "Biased Recommendations," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2012-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  12. Saori Chiba & Kaiwen Leong, 2013. "Managerial Economics of Cheap Talk," Working Papers 24, Department of Management, Università Ca' Foscari Venezia.
  13. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, American Economic Association, vol. 102(2), pages 780-809, April.

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