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Voluntary Disclosure in Bilateral Transactions

59 Pages Posted: 16 Nov 2016 Last revised: 17 Oct 2017

Vincent Glode

University of Pennsylvania - The Wharton School

Christian C. Opp

University of Pennsylvania - The Wharton School

Xingtan Zhang

University of Colorado at Boulder, Leeds School of Business, Department of Finance

Date Written: October 16, 2017

Abstract

We characterize optimal voluntary disclosures by a privately informed agent facing a counterparty endowed with market power in a bilateral transaction. Although disclosures reveal some of the agent's private information, they may increase his information rents by mitigating the counterparty's incentives to resort to inefficient screening. We show that when disclosures are restricted to be ex post verifiable, the informed agent optimally designs a disclosure plan that is partial and that implements socially efficient trade in equilibrium. Our results shed light on the conditions necessary for asymmetric information to impede trade and the determinants of disclosures' coarseness.

Keywords: Information Design, Disclosure, Market Power, Persuasion

JEL Classification: D42, D82, D83, G24 L12

Suggested Citation

Glode, Vincent and Opp, Christian C. and Zhang, Xingtan, Voluntary Disclosure in Bilateral Transactions (October 16, 2017). Available at SSRN: https://ssrn.com/abstract=2869232

Vincent Glode (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christian C. Opp

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-573-3186 (Phone)

Xingtan Zhang

University of Colorado at Boulder, Leeds School of Business, Department of Finance ( email )

Campus Box 419
Boulder, CO
United States

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