Regulating Information with Bayesian Audiences
31 Pages Posted: 16 Sep 2019 Last revised: 11 Jan 2020
Date Written: September 12, 2019
We analyze the regulation of false statements in the presence of Bayesian audiences. We find that: (a) Often, moderate sanctions are optimal even though strict sanctions can fully deter all false statements; (b) the existence of separating equilibria—where only truthful statements are made—critically depends on judicial accuracy; (c) the magnitude of sanctions trades-off false information, chilling of truthful statements, and litigation costs; and (d) private enforcement often dominates public enforcement despite the lack of commitment. We emphasize the case of defamation law and discuss other contexts including securities regulation, whistle-blower incentives, jury trials, and reports of criminal activity.
Keywords: information regulation, defamation, disclosure
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