Events

Prof. Cyrus Aghamolla
Associate Professor in Accounting
Jones Graduate School of Business
Rice University

We consider a dynamic adverse selection setting where a privately informed seller can choose to reveal or withhold past trade information to privately informed buyers. Buyers naturally receive less information when the seller can strategically withhold negative news relative to a setting where current buyers always observe the seller’s history of trade, i.e., mandatory disclosure. Despite the informational disadvantage, we find that strategic disclosure by the seller can be welfare-increasing relative to mandatory disclosure, under which past trade is always disclosed. This occurs because voluntary disclosure attenuates the seller’s incentive to engage in destructive signaling and can lead to more efficient trade.