IDEAS home Printed from https://ideas.repec.org/p/bon/boncrc/crctr224_2024_560.html
   My bibliography  Save this paper

Optimal Disclosure Mandate in Supply Chains

Author

Listed:
  • Tsz-Ning Wong
  • Lily Ling Yang
  • Andrey Zhukov

Abstract

We study a model in which a firm can acquire conclusive evidence about its suppliers social and environmental impacts. We identify the disclosure mandate that maximizes market information. A disclosure mandate determines whether (i) the firms investigation effort is observable by the market and (ii) obtained evidence is disclosed to the market. When the supply chain visibility is low, the firm does not know its suppliers impacts. The combination of covert investigation and voluntary disclosure of obtained evidence incentivizes the firm to acquire evidence and constitutes the optimal disclosure mandate. When the supply chain visibility is high, the firm knows its suppliers impacts. Overt investigation and mandatory disclosure of obtained evidence together enable the firm to signal its private knowledge through the chosen investigation effort and maximize market information. The sharp contrast of these two cases highlights the importance of supply chain visibility in determining the optimal mandate.

Suggested Citation

  • Tsz-Ning Wong & Lily Ling Yang & Andrey Zhukov, 2024. "Optimal Disclosure Mandate in Supply Chains," CRC TR 224 Discussion Paper Series crctr224_2024_560, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2024_560
    as

    Download full text from publisher

    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp560
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Aaron S. Edlin & Chris Shannon, 1998. "Strict Single Crossing and the Strict Spence-Mirrlees Condition: A Comment on Monotone Comparative Statics," Econometrica, Econometric Society, vol. 66(6), pages 1417-1426, November.
    2. Wong, Tsz-Ning & Yang, Lily Ling, 2021. "Dynamic expert incentives in teams," Games and Economic Behavior, Elsevier, vol. 125(C), pages 27-47.
    3. P. Milgrom, 2009. "What the Seller Wont Tell You: Persuasion and Disclosure in Markets," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 3.
    4. Emeric Henry, 2009. "Strategic Disclosure of Research Results: The Cost of Proving Your Honesty," Economic Journal, Royal Economic Society, vol. 119(539), pages 1036-1064, July.
    5. Steven Matthews & Andrew Postlewaite, 1985. "Quality Testing and Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 328-340, Autumn.
    6. 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.
    7. Jung, Wo & Kwon, Yk, 1988. "Disclosure When The Market Is Unsure Of Information Endowment Of Managers," Journal of Accounting Research, Wiley Blackwell, vol. 26(1), pages 146-153.
    8. Wong, Tsz-Ning & Yang, Lily Ling, 2018. "When does monitoring hurt? Endogenous information acquisition in a game of persuasion," Economics Letters, Elsevier, vol. 163(C), pages 186-189.
    9. Ran Weksler & Boaz Zik, 2023. "Disclosure in Markets for Ratings," American Economic Journal: Microeconomics, American Economic Association, vol. 15(3), pages 501-526, August.
    10. A. Mitchell Polinsky & Steven Shavell, 2012. "Mandatory Versus Voluntary Disclosure of Product Risks," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 360-379.
    11. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-1365, November.
    12. Tim Kraft & León Valdés & Yanchong Zheng, 2018. "Supply Chain Visibility and Social Responsibility: Investigating Consumers’ Behaviors and Motives," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 617-636, October.
    13. Emeric Henry, 2009. "Disclosure of research results: the cost of proving your honesty," Post-Print hal-01023670, HAL.
    14. Steven Shavell, 1994. "Acquisition and Disclosure of Information Prior to Sale," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 20-36, Spring.
    15. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    16. 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 461-483, December.
    17. Yeon-Koo Che & Navin Kartik, 2009. "Opinions as Incentives," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 815-860, October.
    18. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09iatr74eao is not listed on IDEAS
    19. Dye, Ra, 1985. "Disclosure Of Nonproprietary Information," Journal of Accounting Research, Wiley Blackwell, vol. 23(1), pages 123-145.
    20. Basak Kalkanci & Erica L. Plambeck, 2020. "Managing Supplier Social and Environmental Impacts with Voluntary Versus Mandatory Disclosure to Investors," Management Science, INFORMS, vol. 66(8), pages 3311-3328, August.
    21. Herresthal, Claudia, 2022. "Hidden testing and selective disclosure of evidence," Journal of Economic Theory, Elsevier, vol. 200(C).
    22. Navin Kartik & Frances Xu Lee & Wing Suen, 2017. "Investment in concealable information by biased experts," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 24-43, March.
    23. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09iatr74eao is not listed on IDEAS
    24. Soo-Haeng Cho & Xin Fang & Sridhar Tayur & Ying Xu, 2019. "Combating Child Labor: Incentives and Information Disclosure in Global Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 692-711, July.
    25. Peter M. DeMarzo & Ilan Kremer & Andrzej Skrzypacz, 2019. "Test Design and Minimum Standards," American Economic Review, American Economic Association, vol. 109(6), pages 2173-2207, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tsz-Ning Wong & Lily Ling Yang & Andrey Zhukov, 2024. "Optimal Disclosure Mandate in Supply Chains," UB School of Economics Working Papers 2024/468, University of Barcelona School of Economics.
    2. Dahm, Matthias & González, Paula & Porteiro, Nicolás, 2018. "The enforcement of mandatory disclosure rules," Journal of Public Economics, Elsevier, vol. 167(C), pages 21-32.
    3. Claude Fluet & Thomas Lanzi, 2021. "Cross-Examination," Working Papers of BETA 2021-40, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Herresthal, Claudia, 2022. "Hidden testing and selective disclosure of evidence," Journal of Economic Theory, Elsevier, vol. 200(C).
    5. Shuo Liu & Dimitri Migrow, 2019. "Designing organizations in volatile markets," ECON - Working Papers 319, Department of Economics - University of Zurich.
    6. Hedlund, Jonas, 2017. "Bayesian persuasion by a privately informed sender," Journal of Economic Theory, Elsevier, vol. 167(C), pages 229-268.
    7. Li, Run, 2022. "Full revelation of expertise before disclosure," Economics Letters, Elsevier, vol. 221(C).
    8. Bhattacharya, Sourav & Goltsman, Maria & Mukherjee, Arijit, 2018. "On the optimality of diverse expert panels in persuasion games," Games and Economic Behavior, Elsevier, vol. 107(C), pages 345-363.
    9. Hedlund, Jonas, 2015. "Persuasion with communication costs," Games and Economic Behavior, Elsevier, vol. 92(C), pages 28-40.
    10. Herresthal, C., 2017. "Hidden Testing and Selective Disclosure of Evidence," Cambridge Working Papers in Economics 1712, Faculty of Economics, University of Cambridge.
    11. Hedlund, Jonas, 2014. "Bayesian signaling," Working Papers 0577, University of Heidelberg, Department of Economics.
    12. Arnaud Dellis & Mandar Oak, 2020. "Subpoena power and informational lobbying," Journal of Theoretical Politics, , vol. 32(2), pages 188-234, April.
    13. Li, Sanxi & Peitz, Martin & Zhao, Xiaojian, 2016. "Information disclosure and consumer awareness," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 209-230.
    14. Lichtig, Avi & Weksler, Ran, 2023. "Information transmission in voluntary disclosure games," Journal of Economic Theory, Elsevier, vol. 210(C).
    15. Alfredo Di Tillio & Marco Ottaviani & Peter Norman Sørensen, 2021. "Strategic Sample Selection," Econometrica, Econometric Society, vol. 89(2), pages 911-953, March.
    16. Liu, Shuo & Migrow, Dimitri, 2022. "When does centralization undermine adaptation?," Journal of Economic Theory, Elsevier, vol. 205(C).
    17. Wong, Tsz-Ning & Yang, Lily Ling, 2021. "Dynamic expert incentives in teams," Games and Economic Behavior, Elsevier, vol. 125(C), pages 27-47.
    18. Gabriele Gratton & Richard Holden & Anton Kolotilin, 2015. "Timing Information Flows," Discussion Papers 2015-16, School of Economics, The University of New South Wales.
    19. Emeric Henry & Marco Ottaviani, 2019. "Research and the Approval Process: The Organization of Persuasion," American Economic Review, American Economic Association, vol. 109(3), pages 911-955, March.
    20. Winand Emons & Claude Fluet, 2019. "Strategic communication with reporting costs," Theory and Decision, Springer, vol. 87(3), pages 341-363, October.

    More about this item

    Keywords

    Supply chain transparency; Mandatory disclosure; Voluntary disclosure;
    All these keywords.

    JEL classification:

    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bon:boncrc:crctr224_2024_560. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CRC Office (email available below). General contact details of provider: https://www.crctr224.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.