Regulating false disclosure

Maarten Janssen, Santanu Roy

Publications: Working paper

Abstract

Firms communicate private information about product quality through a combination of pricing and disclosure where disclosure may be deliberately false. In a competitive setting, we examine the effect of regulation penalizing false disclosure. Stronger regulation reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it often creates incentives for excessive disclosure. Regulation is suboptimal unless disclosure itself is inexpensive and even in the latter case, only strong regulation is welfare improving. Weak regulation is always worse than no regulation. Even high quality firms suffer due to regulation.
Original languageEnglish
Number of pages66
Publication statusPublished - May 2017

Publication series

SeriesWorking paper / The Vienna Institute for International Economic Studies (WIIW)
NumberNo.1705
SeriesCEPR Discussion Paper Series
Number12450

Austrian Fields of Science 2012

  • 502013 Industrial economics
  • 502021 Microeconomics

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