Working Paper Series, University of Zurich, Department of Economics 216
This paper studies the effect of disclosing conflicts of interests on strategic communication when the sender has lying costs. I present a simple economic mechanism under which such disclosure often leads to more informative, but at the same time also to more biased messages. This benefits rational receivers while it exerts a negative externality from them on naive or delegating receivers; disclosure is thus not a Pareto-improvement among receivers. I identify general conditions of the information structure under which this effect manifests and show that whenever it does, full disclosure is socially inefficient. The results hold independently of the degree of receivers' risk-aversion and for arbitrary precesion of the disclosure statement.
Strategic communication misreporting conflict of interest disclosure