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What the Seller Won’t Tell You: Persuasion and Disclosure in Markets

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  • P. MILGROM.

Abstract

Thе paper presents the microeconomic theoretical arguments about how sellers disclose information in an attempt to encourage buyers, and the potential role for regulation in encouraging efficient disclosure of information. The author seeks to understand, when should one expect all the relevant information to be reported. If testing and reporting by the seller are costly, the question is whether too little or too much testing and reporting will be done. The article also studies the types of information withheld by the seller and the corresponding reactions of rational buyers. The problems of social welfare and the government regulations to improve the functioning of markets are also addressed. The theoretical tool proposed by the author is the theory of persuasion games — games in which one or more sellers provide verifiable information to buyers to influence the actions they take.

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Bibliographic Info

Article provided by N.P. Redaktsiya zhurnala "Voprosy Economiki" in its journal Voprosy Economiki.

Volume (Year): 3 (2009)
Issue (Month): ()
Pages:

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Handle: RePEc:nos:voprec:2009-03-6

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Web page: http://www.vopreco.ru/eng/year.html

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References

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  1. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "What Works in Securities Law?," NBER Working Papers 9882, National Bureau of Economic Research, Inc.
  3. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  5. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  6. H.S. Shin, 1994. "News Management and the Value of Firms," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 58-71, Spring.
  7. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  8. Boyan Jovanovic, 1982. "Truthful Disclosure of Information," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 36-44, Spring.
  9. Hyun Song Shin, 2003. "Disclosures and Asset Returns," Econometrica, Econometric Society, vol. 71(1), pages 105-133, January.
  10. Sanford Grossman & Oliver Hart, . "Disclosure Laws and Takeover Bids," Rodney L. White Center for Financial Research Working Papers 23-79, Wharton School Rodney L. White Center for Financial Research.
  11. Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November.
  12. Rubinstein, Ariel & Glazer, Jacob, 2006. "A study in the pragmatics of persuasion: a game theoretical approach," Theoretical Economics, Econometric Society, vol. 1(4), pages 395-410, December.
  13. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
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Citations

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Cited by:
  1. Irene Valsecchi, 2013. "The expert problem: a survey," Economics of Governance, Springer, vol. 14(4), pages 303-331, November.
  2. Simon P. Anderson & Régis Renault, 2013. "The Advertising Mix for a Search Good," Management Science, INFORMS, vol. 59(1), pages 69-83, April.
  3. de Meza, David Emmanuel & Irlenbusch, Bernd & Reyniers, Diane, 2010. "Disclosure, Trust and Persuasion in Insurance Markets," IZA Discussion Papers 5060, Institute for the Study of Labor (IZA).
  4. De Borger, Bruno & Fosgerau, Mogens, 2012. "Information provision by regulated public transport companies," MPRA Paper 42267, University Library of Munich, Germany.
  5. Daniel Stone, 2011. "A signal-jamming model of persuasion: interest group funded policy research," Social Choice and Welfare, Springer, vol. 37(3), pages 397-424, September.
  6. Jackson, Matthew O. & Tan, Xu, 2013. "Deliberation, disclosure of information, and voting," Journal of Economic Theory, Elsevier, vol. 148(1), pages 2-30.
  7. Denter, Philipp & Morgan, John & Sisak, Dana, 2011. ""Where Ignorance is Bliss, 'tis Folly to be Wise": Transparency in Contests," Economics Working Paper Series 1128, University of St. Gallen, School of Economics and Political Science.
  8. Di Maggio, Marco, 2009. "Sweet Talk: A Theory of Persuasion," MPRA Paper 18697, University Library of Munich, Germany.
  9. Clifford Winston, 2008. "The Efficacy of Information Policy: A Review of Archon Fung, Mary Graham, and David Weil's Full Disclosure: The Perils and Promise of Transparency," Journal of Economic Literature, American Economic Association, vol. 46(3), pages 704-17, September.
  10. Eső, Péter & Wallace, Chris, 2013. "Meggyőzés és megegyezés egy dinamikus alkujátékban
    [Persuasion and settlement in a dynamic bargaining game]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 930-939.
  11. Mingfeng Lin & Paulo Goes, 2012. "The Appeal of Third-party Certifications: Information Unraveling in Natural Experiments," Working Papers 12-02, NET Institute.

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