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Optimal information disclosure and market outcomes

Author

Listed:
  • Hopenhayn, Hugo

    (Department of Economics, UCLA)

  • Saeedi, Maryam

    (Tepper Business School, Carnegie Mellon University)

Abstract

This paper addresses two central questions in markets with adverse selection: How does information impact the welfare of market participants (sellers and buyers)? Also, relatedly, what is the optimal information disclosure policy and how is it affected by the planner’s relative welfare weight on sellers’ surplus versus consumers’ surplus? We find that as a result of improved information, prices become more strongly associated with the true quality of sellers and thus more dispersed. This will result in higher total surplus. Furthermore, we find that better information has opposing welfare effects on consumers and producers that could lead to limited disclosure depending on the social objective and market characteristics.

Suggested Citation

  • Hopenhayn, Hugo & Saeedi, Maryam, 2023. "Optimal information disclosure and market outcomes," Theoretical Economics, Econometric Society, vol. 18(4), November.
    • Handle: RePEc:the:publsh:5104
    as

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    References listed on IDEAS

    as
    1. Kolotilin, Anton, 2018. "Optimal information disclosure: a linear programming approach," Theoretical Economics, Econometric Society, vol. 13(2), May.
    2. Michael Ostrovsky & Michael Schwarz, 2010. "Information Disclosure and Unraveling in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 34-63, May.
    3. Gleb Romanyuk & Alex Smolin, 2019. "Cream Skimming and Information Design in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 11(2), pages 250-276, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Adverse selection; information design; consumer surplus; producer surplus;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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