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Unpublished Paper
When Mandatory Disclosure Hurts: Expert Advice and Conflicting Interests
Journal of Economic Theory, 139 (1): 47-74 (2008)
  • Kristof Madarasz
  • Ming Li
Abstract
We study the quality of advice that an informed and biased expert gives to an uninformed decision maker. We compare two scenarios: mandatory disclosure of the bias and non-disclosure, where information about the bias can only be revealed through cheap-talk. We find that in many scenarios non-disclosure allows for higher welfare for both parties. Hiding the bias allows for more precise communication for the more biased type and, if different types are biased in different directions, may allow for the same for the less biased type. We identify contexts where equilibrium revelation allows but mandatory disclosure prevents meaningful communication
Disciplines
Publication Date
2008
Citation Information
Kristof Madarasz and Ming Li. "When Mandatory Disclosure Hurts: Expert Advice and Conflicting Interests" Journal of Economic Theory, 139 (1): 47-74 (2008)
Available at: http://works.bepress.com/kristof_madarasz/1/