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Credibility for Sale: the Effect of Disclosure on Information Acquisition and Transmission

We study the effect of disclosure on information acquisition and transmission in a dynamic reputation model. In each period, to make a report to a client, an expert chooses between conducting a costly investigation or channeling a message from an interest group. We show that not disclosing the source of the expert's report may increase the frequency of investigation by the expert. Nevertheless, it decreases the quality of the clients' decisions. We demonstrate that, however, when the importance of decisions vary across time, when the interest groups are long-lived, or when the expert's clientele is growing in her reputation, nondisclosure may improve the quality of the clients' decisions.

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Paper provided by Concordia University, Department of Economics in its series Working Papers with number 09008.

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Length: 36 pages
Date of creation: Feb 2009
Date of revision: Oct 2009
Handle: RePEc:crd:wpaper:09008
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  1. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  2. ANDERSON, Simon P. & GABSZEWICZ, Jean J., 2005. "The media and advertising : a tale of two-sided markets," CORE Discussion Papers 2005088, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Wei Li, 2007. "Changing One's Mind when the Facts Change: Incentives of Experts and the Design of Reporting Protocols," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1175-1194.
  4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  5. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
  6. Victor Ginsburgh & David Throsby, 2006. "Handbook of the economics of art and culture," ULB Institutional Repository 2013/1673, ULB -- Universite Libre de Bruxelles.
  7. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
  8. Anderson, Simon P & McLaren, John, 2010. "Media Mergers and Media Bias with Rational Consumers," CEPR Discussion Papers 7768, C.E.P.R. Discussion Papers.
  9. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Press advertising and the ascent of the `Pensée Unique'," CORE Discussion Papers RP -1512, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Choi, Jay Pil, 2006. "Broadcast competition and advertising with free entry: Subscription vs. free-to-air," Information Economics and Policy, Elsevier, vol. 18(2), pages 181-196, June.
  11. Sendhil Mullainathan & Andrei Shleifer, 2002. "Media Bias," NBER Working Papers 9295, National Bureau of Economic Research, Inc.
  12. Jeong-Yoo Kim, 1996. "Cheap Talk and Reputation in Repeated Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 787-802, Winter.
  13. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
  14. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  15. Beatriz Mariano, 2008. "Do Reputational Concerns Lead to Reliable Ratings?," FMG Discussion Papers dp613, Financial Markets Group.
  16. Martin W. Cripps & George J. Mailath & Larry Samuelson, 2004. "Imperfect Monitoring and Impermanent Reputations," Econometrica, Econometric Society, vol. 72(2), pages 407-432, 03.
  17. Matthew Gentzkow & Jesse Shapiro, 2005. "Media Bias and Reputation," NBER Working Papers 11664, National Bureau of Economic Research, Inc.
  18. Wrasai, Phongthorn & Swank, Otto H., 2007. "Policy makers, advisers, and reputation," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 579-590, April.
  19. Bourjade, Sylvain & Jullien, Bruno, 2004. "Expertise and Bias in Decision Making," MPRA Paper 7251, University Library of Munich, Germany, revised Jan 2007.
  20. Matthew Ellman & Fabrizio Germano, 2004. "What Do the Papers Sell?," Working Papers 149, Barcelona Graduate School of Economics.
  21. Timothy Besley & Andrea Prat, 2006. "Handcuffs for the Grabbing Hand? Media Capture and Government Accountability," American Economic Review, American Economic Association, vol. 96(3), pages 720-736, June.
  22. Dino Gerardi & Leeat Yariv, 2008. "Costly Expertise," American Economic Review, American Economic Association, vol. 98(2), pages 187-93, May.
  23. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
  24. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
  25. In-Uck Park, 2005. "Cheap-Talk Referrals of Differentiated Experts in Repeated Relationships," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 391-411, Summer.
  26. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
  27. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  28. Benabou, Roland & Laroque, Guy, 1992. "Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 921-58, August.
  29. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  30. Esther Gal-Or & Anthony Dukes, 2003. "Minimum Differentiation in Commercial Media Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 291-325, 09.
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