Logo Logo

Mandatory vs. Voluntary Disclosure in Markets with Informed and Uninformed Customers, Journal of Law, Economics, & Organization

Abstract

Numerous rules mandate the disclosure of information. This article analyzes why such rules are enacted. Specifically, (i) why wouldn't firms voluntarily disclose their private information; and (ii) given that voluntary disclosure would not be forthcoming, who has the incentive to lobby for mandatory disclosure rules? Previous analyses of disclosure assume that all customers understand the disclosures that can be made. A key result in these analyses is that there is no role for mandatory disclosure. Either voluntary disclosure is forthcoming or if it is not, no one is better off with mandatory disclosure. We analyze a market in which not all customers understand the disclosures that can be made. We show that if the fraction of customers who would understand a firm's disclosure is too low, then voluntary disclosure may not be forthcoming. In this case, mandatory disclosure benefits some (possibly all) customers and may also benefit firms. Thus we identify a motive for someone to lobby for such rules. Our results suggest that we should find mandatory disclosure rules with regard to information that is relatively difficult to understand.

Type

Article

Author(s)

Michael J. Fishman, Kathleen Hagerty

Date Published

2003

Citations

Fishman, J. Michael, and Kathleen Hagerty. 2003. Mandatory vs. Voluntary Disclosure in Markets with Informed and Uninformed Customers. Journal of Law, Economics, & Organization. 19(1): 45-63.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more