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Keeping a Clean Reputation: More Evidence on the Perverse Effects of Disclosure


  • Cary Deck

    (Economic Science Institute, Chapman University)

  • J. Dustin Tracy

    (Economic Science Institute, Chapman University)


When a principal relies on an agent, a conflict of interest can encourage the agent to provide biased ad-vice. Conventional wisdom suggests that such behavior can be reduced through disclosure requirements. However, disclosure has been shown to exacerbate self-serving bias and can actually lead to greater harm for the principal in one-shot interactions. But in many naturally occurring settings, agents form rep-utations, a mechanism that could diminish the incentive to provide biased advice. We test for bias in the advice agents provide when faced with reputation concerns, and examine the impact of disclosure in such an environment. In controlled laboratory experiments, we find little evidence of self-serving bias in the absence of disclosure when (3) agents form reputations and (4) principals use that information in selecting agents. However, we find the introduction of disclosure leads to self-serving biased advice that is diÿcult for principals to detect. When the conflict of interest is endogenous, we find that agents overwhelmingly put themselves in the position of having a conflict of interest, but principals neither avoid conflicted agents nor differentially discount the advice such agents provide.

Suggested Citation

  • Cary Deck & J. Dustin Tracy, 2020. "Keeping a Clean Reputation: More Evidence on the Perverse Effects of Disclosure," Working Papers 20-21, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:20-21

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    More about this item


    Conflict of Interest; Principal-Agent; Disclosure; Market Competition;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices

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