Testing, Disclosure and Approval
47 Pages Posted: 12 Nov 2016 Last revised: 1 Oct 2019
Date Written: October 1, 2019
Approvers selecting candidates or certifying products often base their decisions on a mixture of information, some of which is voluntarily disclosed by applicants, and some which they acquire first-hand, by way of tests or otherwise. We examine the interplay between approvers' first-hand information acquisition and applicants' voluntary disclosure. We show that access to cheaper or more accurate information on the part of approvers might impair disclosure by applicants, resulting in overall lower expected payoffs for the approvers. We characterize simple testing rules to which approvers can commit in order to remedy the aforementioned effect and improve their expected payoff.
Keywords: Information Acquisition; Testing; Disclosure; Certification
JEL Classification: C72, D82, D83, G24, G28
Suggested Citation: Suggested Citation