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The wrong kind of transparency

  • Andrea Prat

In a model of career concerns for experts, when is the principal hurt from observing more information about her agent? This paper introduces a distinction between information on the consequence of the agent's action and information directly on the agent's action. It is the latter kind that can hurt the principal by engendering conformism, which worsens both discipline and sorting. The paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal. The paper also shows the existence of complementarities between transparency on action and transparency on consequence. The results are used to interpret existing disclosure policies in politics, corporate governance, and delegated portfolio management.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 3679.

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Length: 49 pages
Date of creation: Oct 2002
Date of revision:
Handle: RePEc:ehl:lserod:3679
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  1. Jeffery Ely & Drew Fudenberg & David Levine, 2002. "When is Reputation Bad?," Discussion Papers 1358, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  7. Jeffrey C. Ely & Juuso Valimaki, 2002. "Bad Reputation," Discussion Papers 1348, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  9. Lakonishok, Joseph & Shleifer, Andrei & Vishny, Robert W., 1992. "The Structure and Performance of the Money Management Industry," Scholarly Articles 10498059, Harvard University Department of Economics.
  10. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
  11. Andrea Prat, 2002. "The Wrong Kind of Transparency," STICERD - Theoretical Economics Paper Series 439, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  12. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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  15. Ulrike Malmendier & Geoffrey Tate, 2005. "CEO Overconfidence and Corporate Investment," Journal of Finance, American Finance Association, vol. 60(6), pages 2661-2700, December.
  16. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
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  18. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 183-98, January.
  19. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
  20. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  21. Cremer, Jacques, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 275-95, May.
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  24. Canice Prendergast, 2002. "Consumers and Agency Problems," Economic Journal, Royal Economic Society, vol. 112(478), pages C34-C51, March.
  25. Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, vol. 81(3), pages 393-421, September.
  26. Leaver, Clare, 2002. "Bureaucratic Minimal Squawk: Theory and Evidence," Royal Economic Society Annual Conference 2002 121, Royal Economic Society.
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