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Information acquisition and the value of bad news

Author

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  • Alessandro Ispano

    (TSE and CREST)

Abstract

When an interested party controls both the acquisition and the transmission of evidence and some of her information is unverifiable, a tension between selective revelation and benefits of transparency arises. The interested party might hence find it optimal to reveal unfavorable evidence even though disclosure is discretionary. While this revelation policy yields to more accurate decisions, informativeness is non monotone in the extent of voluntary disclosure. The model provides a rationale for adverse announcements such as product recalls and earning warnings and implications for mandatory disclosure laws.

Suggested Citation

  • Alessandro Ispano, 2013. "Information acquisition and the value of bad news," Working Papers 2013-36, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2013-36
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    References listed on IDEAS

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    Cited by:

    1. Deversi, Marvin & Ispano, Alessandro & Schwardmann, Peter, 2021. "Spin doctors: An experiment on vague disclosure," European Economic Review, Elsevier, vol. 139(C).
    2. Aleksei Smirnov & Egor Starkov, 2022. "Bad News Turned Good: Reversal under Censorship," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 506-560, May.
    3. Lodh, Rishab & Dey, Oindrila, 2023. "“Fake news alert!”: A game of misinformation and news consumption behavior," MPRA Paper 118371, University Library of Munich, Germany.

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    More about this item

    Keywords

    persuasion; costly information; adverse disclosure; signaling;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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