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The wrong kind of transparency

Prat, Andrea (2003) The wrong kind of transparency. 3859. Centre for Economic Policy Research, London, UK.

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Abstract

In a model of career concerns for experts, when is a principal hurt from observing more information about their agent? This Paper introduces a distinction between information on the consequence of the agent’s action and information directly on the agent’s action. When the latter kind of information is available, the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori. This conformist behaviour hurts the principal in two ways: the decision made by the agent is less likely to be the right one (discipline) and ex post it is more difficult to evaluate the agent’s ability (sorting). The Paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal. The Paper also shows the existence of complementarities between transparency on action and transparency on consequence. The results on the distinction between transparency on action and transparency on consequence are then used to interpret existing disclosure policies in politics, corporate governance, and delegated portfolio management.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.cepr.org
Additional Information: © 2003 Andrea Prat
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 3859
Date Deposited: 02 Jun 2008 08:55
URL: http://eprints.lse.ac.uk/5215/

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