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