Public Information Quality with Monopolistic Sellers
Posted: 25 Jan 2016
Date Written: June 21, 1995
We show that in markets with asymmetric information, even if there is full agreement on the choice of optimal information quality, entrusting the choice of (unverifiable) public information quality to traders who benefit from such information leads to inefficiencies. However, delegation of information quality choice to an independent agent who is precluded from sharing in trading profits results in efficient implementation. This result provides a game-theoretic rationale for current institutional arrangements where a private organization that is independent of market traders, the Financial Accounting Standards Board, determines the standards for public disclosures.
Keywords: auditing, independence, market
JEL Classification: D41, D42, D82
Suggested Citation: Suggested Citation