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Costly transparency

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  • Fox, Justin
  • Van Weelden, Richard

Abstract

We consider whether a career-minded expert would make better decisions if the principal could observe the consequences of the expert's action. The previous literature has found that this “transparency of consequence” can only improve the efficacy of the expert's decision making. We show, however, that this conclusion is very sensitive to the specified cost structure: if learning the consequences of the expert's action makes the expert more likely to choose the action most likely to correspond to the true state of the world, when costs are asymmetric, this can be associated with a decrease in the principal's expected welfare. In addition, we show that, when the prior on the state of the world is sufficiently strong, if the principal benefits from learning the consequences of the expert's action, her utility is higher if she observes only the consequences and not the action taken. For such priors, the optimal transparency regime will involve either the principal observing only the expert's action or only the consequences of the expert's action: it will never be optimal to observe both. We illustrate these results with examples from finance and public policymaking.

Suggested Citation

  • Fox, Justin & Van Weelden, Richard, 2012. "Costly transparency," Journal of Public Economics, Elsevier, vol. 96(1), pages 142-150.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:142-150
    DOI: 10.1016/j.jpubeco.2011.08.007
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ascensión Andina-Díaz & José A. García-Martínez, 2014. "Media silence, feedback power and reputation," Working Papers 2014-03, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    2. Hahn, Volker, 2017. "Committee design with endogenous participation," Games and Economic Behavior, Elsevier, vol. 102(C), pages 388-408.
    3. Elliott Ash & Massimo Morelli & Richard Van Weelden, 2015. "Elections and Divisiveness: Theory and Evidence," NBER Working Papers 21422, National Bureau of Economic Research, Inc.
    4. Ascensión Andina Díaz & José A. García-Martínez, 2016. "A careerist judge with two concerns," Working Papers 2016-02, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    5. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-Faceted Concept of Transparency," Working Paper Series 1013, Research Institute of Industrial Economics.
    6. César Martinelli & John Duggan, 2014. "The Political Economy of Dynamic Elections: A Survey and Some New Results," Working Papers 1403, Centro de Investigacion Economica, ITAM.
    7. S. Nageeb Ali & Roland Bénabou, 2016. "Image Versus Information: Changing Societal Norms and Optimal Privacy," NBER Working Papers 22203, National Bureau of Economic Research, Inc.
    8. Sebastian Fehrler & Niall Hughes, 2018. "How Transparency Kills Information Aggregation: Theory and Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 181-209, February.
    9. Garcia-Martinez, Jose A., 2013. "The Perverse Incentive of Knowing the Truth," MPRA Paper 43825, University Library of Munich, Germany.
    10. Prato, Carlo & Wolton, Stephane, 2014. "The Voters' Curses: The Upsides and Downsides of Political Engagement," MPRA Paper 53482, University Library of Munich, Germany.
    11. Bueno de Mesquita, Ethan & Landa, Dimitri, 2015. "Political accountability and sequential policymaking," Journal of Public Economics, Elsevier, vol. 132(C), pages 95-108.
    12. Le Bihan, Patrick, 2015. "Popular Referendum and Electoral Accountability," IAST Working Papers 15-31, Institute for Advanced Study in Toulouse (IAST).
    13. Gratton, Gabriele, 2015. "The sound of silence: Political accountability and libel law," European Journal of Political Economy, Elsevier, vol. 37(C), pages 266-279.
    14. Fu, Qiang & Li, Ming, 2014. "Reputation-concerned policy makers and institutional status quo bias," Journal of Public Economics, Elsevier, vol. 110(C), pages 15-25.

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