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The Wrong Kind of Transparency

  • Andrea Prat

In a model of career concerns for experts, when is the principal hurt from observing more information about her agent? This paper introduces a distinction between information on the consequence of the agent's action and information directly on the agent's action. It is the latter kind that can hurt the principal by engendering conformism, which worsens both discipline and sorting. The paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal. The paper also shows the existence of complementarities between transparency on action and transparency on consequence. The results are used to interpret existing disclosure policies in politics, corporate governance, and delegated portfolio management.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 3 (June)
Pages: 862-877

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:3:p:862-877
Note: DOI: 10.1257/0002828054201297
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