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What the Seller Won’t Tell You: Persuasion and Disclosure in Markets

  • Paul Milgrom

Thе paper presents the microeconomic theoretical arguments about how sellers disclose information in an attempt to encourage buyers, and the potential role for regulation in encouraging efficient disclosure of information. The author seeks to understand, when should one expect all the relevant information to be reported. If testing and reporting by the seller are costly, the question is whether too little or too much testing and reporting will be done. The article also studies the types of information withheld by the seller and the corresponding reactions of rational buyers. The problems of social welfare and the government regulations to improve the functioning of markets are also addressed. The theoretical tool proposed by the author is the theory of persuasion games — games in which one or more sellers provide verifiable information to buyers to influence the actions they take.

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File URL: http://www.stanford.edu/~milgrom/WorkingPapers/Rational%20Persuasion%2003082007.pdf
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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 843644000000000045.

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Date of creation: 22 Jul 2007
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Handle: RePEc:cla:levrem:843644000000000045
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  1. Sanford Grossman & Oliver Hart, . "Disclosure Laws and Takeover Bids," Rodney L. White Center for Financial Research Working Papers 23-79, Wharton School Rodney L. White Center for Financial Research.
  2. 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.
  3. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  4. Rubinstein, Ariel & Glazer, Jacob, 2006. "A study in the pragmatics of persuasion: a game theoretical approach," Theoretical Economics, Econometric Society, vol. 1(4), pages 395-410, December.
  5. Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November.
  6. H.S. Shin, 1994. "News Management and the Value of Firms," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 58-71, Spring.
  7. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "What Works in Securities Law?," NBER Working Papers 9882, National Bureau of Economic Research, Inc.
  8. Hyun Song Shin, 2001. "Disclosures and asset returns," LSE Research Online Documents on Economics 25044, London School of Economics and Political Science, LSE Library.
  9. 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 461-83, December.
  10. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  11. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  12. Boyan Jovanovic, 1982. "Truthful Disclosure of Information," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 36-44, Spring.
  13. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
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