What the Seller Won't Tell You: Persuasion and Disclosure in Markets
Imagine that you are considering an investment in a new public offering of a firm's shares. The firm's officers make a presentation that includes an audited financial statement, an earnings forecast reviewed by its prestigious investment bankers, and an impressive demonstration of its new technology. Or suppose that you are buying a new furnace to replace an old one that is not working well. The salesman displays a chart showing that the projected total life-cycle cost of one particular model, including capital costs and fuel usage over the projected lifetime of the furnace, is lower than that of some competing models you have considered. This paper reviews the 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. How well does a system of private reporting work? When should we expect all the relevant information to be reported? If testing and reporting by the seller are costly, will too little testing and reporting be done? Or too much? When some information is withheld, what sort of information is withheld? How do rational buyers respond to such withholding? How are prices and welfare affected? What role is there for laws and regulations to improve the functioning of markets? We address these questions by studying the theory of persuasion games -- games in which one or more sellers provide verifiable information to buyers to influence the actions they take.
Volume (Year): 22 (2008)
Issue (Month): 2 (Spring)
|Contact details of provider:|| Web page: https://www.aeaweb.org/jep/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boyan Jovanovic, 1982. "Truthful Disclosure of Information," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 36-44, Spring.
- 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.
- 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.
- Paul Milgrom & John Roberts, 1986.
"Relying on the Information of Interested Parties,"
RAND Journal of Economics,
The RAND Corporation, vol. 17(1), pages 18-32, Spring.
- Hyun Song Shin, 2003.
"Disclosures and Asset Returns,"
Econometric Society, vol. 71(1), pages 105-133, January.
- Hyun Song Shin, 2001. "Disclosures and Asset Returns," FMG Discussion Papers dp371, Financial Markets Group.
- Hyun Song Shin, 2001. "Disclosures and asset returns," LSE Research Online Documents on Economics 25044, London School of Economics and Political Science, LSE Library.
- Shin, Hyun Song, 2002. "Disclosures and Asset Returns," CEPR Discussion Papers 3345, C.E.P.R. Discussion Papers.
- V. Crawford & J. Sobel, 2010.
"Strategic Information Transmission,"
Levine's Working Paper Archive
544, David K. Levine.
- Paul R. Milgrom, 1979.
"Good Nevs and Bad News: Representation Theorems and Applications,"
407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- 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.
- Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
- 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.
- Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
- 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.
- George Akerlof, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 599-617.
When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:22:y:2008:i:2:p:115-131. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.