Working Paper: CEPR ID: DP3859
Authors: Andrea Prat
Abstract: In a model of career concerns for experts, when is a principal hurt from observing more information about their agent? This Paper introduces a distinction between information on the consequence of the agent's action and information directly on the agent's action. When the latter kind of information is available, the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori. This conformist behaviour hurts the principal in two ways: the decision made by the agent is less likely to be the right one (discipline) and ex post it is more difficult to evaluate the agent's ability (sorting). The Paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal. The Paper also shows the existence of complementarities between transparency on action and transparency on consequence. The results on the distinction between transparency on action and transparency on consequence are then used to interpret existing disclosure policies in politics, corporate governance, and delegated portfolio management.
Keywords: disclosure; expert agents; transparency
JEL Codes: D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transparency on action (D73) | agent's conformist behavior (C92) |
| agent's conformist behavior (C92) | principal's interests (I22) |
| observing agent's actions (C92) | agent's disregard for private signals (D82) |
| agent's disregard for private signals (D82) | agent's performance (L85) |
| agent's performance (L85) | principal's ability to evaluate agent's performance (M54) |
| transparency on action (D73) | agent's effort (L85) |
| transparency on action (D73) | sorting ability of principal (C38) |