Voluntary Disclosure in Bilateral Transactions

45 Pages Posted: 16 Nov 2016 Last revised: 19 May 2017

Vincent Glode

University of Pennsylvania - The Wharton School

Christian C. Opp

University of Pennsylvania - The Wharton School

Xingtan Zhang

University of Pennsylvania, The Wharton School

Date Written: May 19, 2017

Abstract

We analyze optimal voluntary disclosure by a privately informed agent who faces a counterparty endowed with market power in a bilateral transaction. While disclosures reduce the agent's informational advantage, 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 privately informed agent always finds it optimal to design a partial disclosure plan that implements socially efficient trade in equilibrium. Our results have important implications for understanding the conditions under which asymmetric information impedes trade and for regulating information disclosure.

Keywords: Information Design, Disclosure, Market Power, Persuasion

JEL Classification: D42, D82, D83

Suggested Citation

Glode, Vincent and Opp, Christian C. and Zhang, Xingtan, Voluntary Disclosure in Bilateral Transactions (May 19, 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 Pennsylvania, The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

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