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Optimal disclosure policy and undue diligence

Author Info

  • David Andolfatto
  • Aleksander Berentsen
  • Christopher Waller

Abstract

While both public and private financial agencies supply asset markets with large quantities of information, they do not necessarily disclose all asset-related information to the general public. This observation leads us to ask what principles might govern the optimal disclosure policy for an asset manager or financial regulator. To investigate this question, we study the properties of a dynamic economy endowed with a risky asset, and with individuals that lack commitment. Information relating to future asset returns is available to society at zero cost. Legislation dictates whether this information is to be made public or not. Given the nature of our environment, nondisclosure is generally desirable. This result is overturned, however, when individuals are able to access hidden information - what we call undue diligence - at sufficiently low cost. Information disclosure is desirable, in other words, only in the event that individuals can easily discover it for themselves.

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Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 045.

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Date of creation: Nov 2011
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Handle: RePEc:zur:econwp:045
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Keywords: Monetary policy; liquidity; financial markets;

Other versions of this item:

Find related papers by JEL classification:
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
  • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other

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  1. Andrea Prat, 2004. "The wrong kind of transparency," LSE Research Online Documents on Economics 24712, London School of Economics and Political Science, LSE Library.
  2. Gary B. Gorton, 2008. "The Subprime Panic," NBER Working Papers 14398, National Bureau of Economic Research, Inc.
  3. Ricardo Lagos & Guillaume Rocheteau, 2004. "Money and capital as competing media of exchange," Staff Report 341, Federal Reserve Bank of Minneapolis.
  4. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 915-944.
  5. Alessandro Citanna & Antonio Villanacci, . "Incomplete markets, allocative efficiency and the information revealed by prices," GSIA Working Papers 10, Carnegie Mellon University, Tepper School of Business.
  6. Ferraris, Leo & Watanabe, Makoto, 2008. "Collateral secured loans in a monetary economy," Journal of Economic Theory, Elsevier, vol. 143(1), pages 405-424, November.
  7. Federal Reserve Bank of St. Louis & David Andolfatto, 2010. "On the Social Cost of Transparency in Monetary Economies," 2010 Meeting Papers 980, Society for Economic Dynamics.
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Cited by:

  1. Allen, Franklin & Vayanos, Dimitri & Vives, Xavier, 2014. "Introduction to financial economics," Journal of Economic Theory, Elsevier, vol. 149(C), pages 1-14.
  2. Erwan Quintin & Cyril Monnet, 2014. "A Theory of Blind Trading," 2014 Meeting Papers 283, Society for Economic Dynamics.

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