Browsing by Subject "information disclosure"

This dissertation comprises two chapters studying how information transmitted in the economy and the financial markets becomes compressed in communications and its consequences. In chapter one, the compression is due to limited communication bandwidth, and in chapter two, it is due to limited attention on the receiver’s end.

Chapter one discusses how information intermediaries selectively present evidence to serve financial decision-makers. Faced with a space limit for their communication reports, the information intermediaries present information selectively. I solve the model for the optimal messages in the intermediaries' communication with the decision-makers and investigate the relationship between the apparent messages and the inferred economic fundamentals. The two main findings are: (i) the model matches many stylized facts about content biases such as prior or extreme biases; (ii) I derive an analytical relationship between the messages and the inferred fundamentals in the asymptotics. This relationship can be conveniently used to interpret observed content biases and quantitatively analyze the effects of the context on the interpretation of contents. The theory also shows that content biases may improve rather than decrease welfare. The model relates to empirical content analysis using frequency-based proxies and can be used to analyze contextual effects on contents.

In chapter two, I develop and analyze a theoretical model that shows how investors allocate their limited attention resources to monitor a wide selection of target firms. An investor with limited attention demands information about the types of her portfolio firms before investing. The firms strategically supply good news and withhold bad news. The investor may press companies to reveal more information by allocating more costly attention to them. Because the benefit to attention is convex, the investor will optimally focus on a subset of firms and acquire complete information while giving up learning anything about the other firms. Firms in the scrutinized subset have low investigation costs and a high Expected Value of Perfect Information (EVPI), and they always receive an efficient amount of capital. The other firms are provided with an inefficient level of capital and suffer from extreme asymmetry in information transparency. The result rationalizes convertible debt as a socially optimal financing instrument for private firms. It can be applied to a venture capital context to analyze entrepreneurial investment relationships.

The increased use of information disclosure in environmental policy raises questions of whether and how provision of information motivates changes in behavior. Accurate assessment of the value of information provision in reducing environmental risks requires understanding how actors respond to risk information. Chapter two examines the effects of disclosure of information on risk perception, knowledge about risks, and actions to mitigate risk from arsenic in private drinking well water. We conduct an experiment where we manipulate how information about the health risks posed by arsenic in drinking water is presented to users of private wells. This is one of the first field experiments to look at framing effects for long-term, latent environmental health risks. In contrast to much of the existing literature, we find that information frame does not affect risk perception or actions taken to address risk for low level of risk.

Chapter three examines how risk perceptions are affected by variations in risk communication, specifically addressing questions raised in the field experiment. We conduct an experiment about the health risks posed by arsenic in drinking water and introduce four manipulations in communication with experimental subjects: arsenic level, information framing, bright lines and relative risk. Chapter three suggests careful consideration must be taken in designing the disclosure of moderate levels of risk to ensure that information disclosure programs effectively convey health-based recommendations. Without these considerations, information disclosure programs may unwittingly and unnecessarily heightening concern among people facing moderate levels of risk. We consider this finding especially important because a broad number of environmental and environmental health risks that are currently unregulated pose moderate levels of risk.

The final chapter asks if the act of disclosing information changes the behavior of those who provide the information. Chapter four seeks to determine the degree to which information disclosure, in the form of TRI, results in improvements in environmental performance. Our work isolates the effect of information disclosure by using changes in the TRI reporting requirements to help identify the causal effect of disclosure from other potential explanations of changes in environmental performance. We find limited evidence that facilities newly reporting for a chemical have greater proportional decreases in total releases. The policy implications of Chapter 4 suggest that information disclosure should not be considered a substitute for regulation of toxic chemicals.