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The enforcement of mandatory disclosure rules

Dahm, Matthias; González, Paula; Porteiro, Nicolás

Authors

Matthias Dahm

Paula González

Nicolás Porteiro



Abstract

This paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm conceals information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Overall, stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that there are situations in which the relationship between the two monitoring instruments might be complementary. We also show that the welfare effects of mandatory disclosure depend on how it is enforced and that imperfect enforcement (in which some information remains concealed) might be optimal. In particular, the optimal fine might be smaller than the largest possible fine, even though the latter requires lower resource costs for inspections.

Journal Article Type Article
Publication Date Nov 30, 2018
Journal Journal of Public Economics
Print ISSN 0047-2727
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 167
Pages 21-32
APA6 Citation Dahm, M., González, P., & Porteiro, N. (2018). The enforcement of mandatory disclosure rules. Journal of Public Economics, 167, (21-32). doi:10.1016/j.jpubeco.2018.08.014. ISSN 0047-2727
DOI https://doi.org/10.1016/j.jpubeco.2018.08.014
Keywords Strategic information; Transmission; Scepticism; Confidence effect; Monitoring; Penalty; Fine; Sanction; Detection probability
Publisher URL https://www.sciencedirect.com/science/article/pii/S0047272718301580?dgcid=rss_sd_all

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