Non-Disclosure Rules as Penalty Defaults

38 Pages Posted: 13 Aug 2021

See all articles by Giuseppe Dari‐Mattiacci

Giuseppe Dari‐Mattiacci

University of Amsterdam; Tinbergen Institute; European Corporate Governance Institute (ECGI)

Sander Onderstal

University of Amsterdam; Tinbergen Institute

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Date Written: July 30, 2021


In Akerlof's 1970 Market for Lemons, asymmetric information arises because sellers are better informed than buyers. A seller’s informational advantage creates an adverse selection problem. When buyers are better informed than sellers, a mirror-image problem arises. Although both asymmetric information situations lead to inefficiencies in the market, informed buyers are not generally required to disclose positive information to their uninformed sellers. After reviewing the traditional explanations for the different legal treatment of buyers and sellers in asymmetric information situations, we develop a different rationale to explain this difference. Our analysis suggests that rules that do not require buyers to disclose positive information operate as information-forcing, penalty default rules. Informed buyers are not required to disclose their positive information, but uninformed buyers separate themselves from informed buyers, by signaling their lack of private information, leading to an inverse correction of this asymmetric information problem.

Keywords: asymmetric information, duties to disclose, penalty default rules, inverse adverse selection

JEL Classification: D44, D82, D86, K12

Suggested Citation

Dari-Mattiacci, Giuseppe and Onderstal, Sander and Parisi, Francesco, Non-Disclosure Rules as Penalty Defaults (July 30, 2021). Available at SSRN: or

Giuseppe Dari-Mattiacci

University of Amsterdam ( email )

Postbus 15654
1001 ND
Amsterdam, Noord-Holland 1001 ND

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Sander Onderstal

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100

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