Optimal disclosure policy and undue diligence

David Andolfatto (), Aleksander Berentsen and Christopher Waller

No 45, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: While both public and private financial agencies supply asset markets with large quantities of information, they do not necessarily disclose all asset-related information to the general public. This observation leads us to ask what principles might govern the optimal disclosure policy for an asset manager or financial regulator. To investigate this question, we study the properties of a dynamic economy endowed with a risky asset, and with individuals that lack commitment. Information relating to future asset returns is available to society at zero cost. Legislation dictates whether this information is to be made public or not. Given the nature of our environment, nondisclosure is generally desirable. This result is overturned, however, when individuals are able to access hidden information - what we call undue diligence - at sufficiently low cost. Information disclosure is desirable, in other words, only in the event that individuals can easily discover it for themselves.

Keywords: Monetary policy; liquidity; financial markets (search for similar items in EconPapers)
JEL-codes: E52 E58 E59 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-cba, nep-cta, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal disclosure policy and undue diligence (2014)
Working Paper: Optimal disclosure policy and undue diligence (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:045

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