Bentham's Panopticon and Real Effects of Voluntary Disclosure

29 Pages Posted: 21 Nov 2014

Date Written: November 20, 2014


This paper examines voluntary disclosure of nonproprietary information where the manager is uncertain about the market’s reaction to disclosure. In particular, we consider situations where a manager is uncertain about whether her decision to withhold private information is either directly observed or only considered possible by investors. We show that adding the possibility that investors identify deliberate non-disclosure increases voluntary disclosures by managers – a finding which is reminiscent of Bentham’s Panopticon. We show that voluntary disclosure increases in the probability that managers assign to the case of being identified as non-disclosers and that this result is the outcome of two opposing effects. Finally, we show that when the manager uses her private information for a publicly observable production decision she has ex ante incentives to make her non-disclosure decision identifiable. This counterintuitive result occurs because informed investors serve as a commitment device for managers to produce efficiently ex post.

Keywords: Voluntary disclosure, Information asymmetry, Information endowment

JEL Classification: M41, D82, C02

Suggested Citation

Ebert, Michael and Schneider, Georg Thomas, Bentham's Panopticon and Real Effects of Voluntary Disclosure (November 20, 2014). Available at SSRN: or

Michael Ebert (Contact Author)

University of Paderborn ( email )

Warburger Str. 100
Paderborn, D-33098

Georg Thomas Schneider

University of Graz ( email )

Universitätsstrasse 15/G1
Graz, 8010

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