Thisstudy examines the welfare implications of a mandatory disclosurerequirement in an oligopolistic market, in which firms can choosetheir output either before or after the resolution of demanduncertainty. Two main results are derived. First, it is shownthat there exists a set of parameter values under which mandatorydisclosure is ineffective in the sense that it does not induceany change in the equilibrium production. Second, for some otherparameter values, imposing mandatory disclosure alters the firms'incentive structure in a way that gives rise to a Pareto lossin welfare; i.e., firms and consumers are made strictly worseoff. These two results suggest that the regulatory implicationsderived from the information-sharing literature should be interpretedwith caution.
Review of Accounting Studies – Springer Journals
Published: Oct 16, 2004
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