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Information Acquisition and the Value of bad News

  • Alessandro Ispano


    (TSE and CREST)

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    When an interested party controls both the acquisition and the transmission of evidence and some of her information is unverifiable, a tension between selective revelation and benefits of transparency arises. The interested party might hence find it optimal to reveal unfavorable evidence even though disclosure is discretionary. While this revelation policy yields to more accurate decisions, informativeness is non monotone in the extent of voluntary disclosure. The model provides a rationale for adverse announcements such as product recalls and earning warnings and implications for mandatory disclosure laws.

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    Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2013-36.

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    Length: 31
    Date of creation: Dec 2013
    Date of revision:
    Handle: RePEc:crs:wpaper:2013-36
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    1. Bruno Jullien & In-Uck Park, 2011. "Seller Reputation and Trust in Pre-Trade Communication," The Centre for Market and Public Organisation 11/272, Department of Economics, University of Bristol, UK.
    2. Sylvain Bourjade & Bruno Jullien, 2011. "The roles of reputation and transparency on the behavior of biased experts," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 575-594, 09.
    3. 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.
    4. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Dziuda, Wioletta, 2011. "Strategic argumentation," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1362-1397, July.
    6. 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.
    7. Mathis, Jérôme, 2008. "Full revelation of information in Sender-Receiver games of persuasion," Journal of Economic Theory, Elsevier, vol. 143(1), pages 571-584, November.
    8. 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.
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