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The wrong kind of transparency

Prat, Andrea (2004) The wrong kind of transparency. Financial Markets Group Discussion Papers (498). Financial Markets Group, The London School of Economics and Political Science, 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 her 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 behavior 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 the principal bene.ts from committing not to observe the agent's action. The paper also shows the existence of strategic complementarities between information on action and information on consequence. The results on the distinction between action and consequence are then used to interpret existing disclosure policies in delegated portfolio management. In particular, they are consistent with hitherto puzzling evidence that mutual funds systematically overperform pension funds.

Item Type: Monograph (Discussion Paper)
Official URL: https://www.fmg.ac.uk/
Additional Information: © 2004 The Author
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
D - Microeconomics > D2 - Production and Organizations > D20 - General
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H70 - General
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
P - Economic Systems > P1 - Capitalist Systems > P11 - Planning, Coordination, and Reform
Date Deposited: 05 Aug 2009 11:53
Last Modified: 13 Sep 2024 19:53
URI: http://eprints.lse.ac.uk/id/eprint/24712

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