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Optimal disclosure policy and undue diligence

  • Andolfatto, David
  • Berentsen, Aleksander
  • Waller, Christopher

Information about asset quality is often not disclosed to asset markets. What principles determine when a financial regulator should disclose or withhold information? We explore this question using a risk-sharing model with intertemporal trade and limited commitment. Information about future asset returns is available to society, but legislation dictates whether this information is disclosed or not. In our environment, nondisclosure is generally desirable except when individuals can access hidden information – what we call undue diligence – at sufficiently low cost. Ironically, information disclosure is desirable only when individuals have a strong incentive to discover it for themselves.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 149 (2014)
Issue (Month): C ()
Pages: 128-152

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Handle: RePEc:eee:jetheo:v:149:y:2014:i:c:p:128-152
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. David Andolfatto, 2010. "On the social cost of transparency in monetary economies," Working Papers 2010-001, Federal Reserve Bank of St. Louis.
  2. Makoto Watanabe & Leo Ferraris, 2007. "Collateral Secured Loans in a Monetary Economy," 2007 Meeting Papers 121, Society for Economic Dynamics.
  3. Andrea Prat, 2004. "The wrong kind of transparency," LSE Research Online Documents on Economics 24712, London School of Economics and Political Science, LSE Library.
  4. Alessandro Citanna & Antonio Villanacci, . "Incomplete markets, allocative efficiency and the information revealed by prices," GSIA Working Papers 10, Carnegie Mellon University, Tepper School of Business.
  5. Lagos, Ricardo & Rocheteau, Guillaume, 2008. "Money and capital as competing media of exchange," Journal of Economic Theory, Elsevier, vol. 142(1), pages 247-258, September.
  6. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 915-944.
  7. Gary Gorton, 2009. "The Subprime Panic," European Financial Management, European Financial Management Association, vol. 15(1), pages 10-46.
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