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Optimal Disclosure Policy and Undue Diligence

University of Zurich Economics Working Paper No. 45

28 Pages Posted: 24 Nov 2011  

David Andolfatto

Simon Fraser University (SFU) - Department of Economics; Federal Reserve Bank of St. Louis

Aleksander Berentsen

University of Basel - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis; University of Notre Dame - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 3, 2011

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.

Keywords: Monetary Policy, liquidity, financial markets

JEL Classification: E52, E58, E59

Suggested Citation

Andolfatto, David and Berentsen, Aleksander and Waller, Christopher J., Optimal Disclosure Policy and Undue Diligence (November 3, 2011). University of Zurich Economics Working Paper No. 45. Available at SSRN: https://ssrn.com/abstract=1963757 or http://dx.doi.org/10.2139/ssrn.1963757

David Andolfatto (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604 291-5825 (Phone)
604 291-5944 (Fax)

Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Aleksander Berentsen

University of Basel - Economics Department ( email )

Petersgraben 51
Basel, CH-4003
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

University of Notre Dame - Department of Economics ( email )

434 Flanner Hall
Notre Dame, IN 46556
United States
574-631-4963 (Phone)
574-631-9238 (Fax)

HOME PAGE: http://www.nd.edu/~cwaller/

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