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Optimal Design of Climate Disclosure Policies: Transparency versus Externality

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  • Shangen Li

Abstract

Does a more transparent climate disclosure policy induce lower emissions? This paper analyzes the welfare consequences of transparency in corporate disclosure regulation in an environment in which regulatory disclosure constitutes the sole avenue for the verification of a firm's emissions. On the one hand, a potential trade-off between disclosure transparency and externality suggests a non-monotonic relationship between them. On the other hand, increased transparency never makes the firm worse off. Consequently, mandating full disclosure is no different from maximizing the firm's private benefit while disregarding the ensuing externality. When the regulator is symmetrically informed about the firm's energy efficiency level, transparency beyond binary disclosure does not lead to welfare improvements. In the presence of information asymmetry, the welfare-maximizing disclosure takes a threshold form: all emissions above the threshold are pooled together, whereas all emissions below are fully disclosed.

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  • Shangen Li, 2024. "Optimal Design of Climate Disclosure Policies: Transparency versus Externality," Papers 2402.11961, arXiv.org.
    • Handle: RePEc:arx:papers:2402.11961
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    References listed on IDEAS

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    1. Lavender Yang & Nicholas Z. Muller & Pierre Jinghong Liang, 2021. "The Real Effects of Mandatory CSR Disclosure on Emissions: Evidence from the Greenhouse Gas Reporting Program," NBER Working Papers 28984, National Bureau of Economic Research, Inc.
    2. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 183-198.
    3. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 183-198.
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