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Voluntary disclosure in bilateral transactions

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  • Glode, Vincent
  • Opp, Christian C.
  • Zhang, Xingtan

Abstract

We characterize optimal voluntary disclosures by a privately informed agent facing a counterparty endowed with market power in a bilateral transaction. Although disclosures reveal some of the agent's private information, they may increase his information rents by mitigating the counterparty's incentives to resort to inefficient screening. We show that when disclosures are restricted to be ex post verifiable, the informed agent optimally designs a disclosure plan that is partial and that implements socially efficient trade in equilibrium. Our results shed light on the conditions necessary for asymmetric information to impede trade and the determinants of disclosures' coarseness.

Suggested Citation

  • Glode, Vincent & Opp, Christian C. & Zhang, Xingtan, 2018. "Voluntary disclosure in bilateral transactions," Journal of Economic Theory, Elsevier, vol. 175(C), pages 652-688.
  • Handle: RePEc:eee:jetheo:v:175:y:2018:i:c:p:652-688
    DOI: 10.1016/j.jet.2018.02.005
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    More about this item

    Keywords

    Information design; Disclosure; Asymmetric information; Market power; Persuasion;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • 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
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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