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The Wrong Kind of Transparency
TL;DR: In this article, the authors introduce a distinction between information on the consequence of the agent's action and information directly on the agents' action, and identify a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal.
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
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TL;DR: In this paper, the authors extend the political accountability model to include the presence of media outlets and the possibility that the incumbent exerts influence over them in equilibrium, the media structure is linked to political outcomes in two ways: directly through its monitoring capacity and indirectly through political capture.
Abstract: It is widely recognized that active media can play a role in enhancing political competition by informing voters Collusion between government and media can, however, undermine this role We extend the political accountability model to include the presence of media outlets and the possibility that the incumbent exerts influence over them In equilibrium, the media structure is linked to political outcomes in two ways: directly through its monitoring capacity and indirectly through political capture We examine evidence both across countries and within India
796 citations
TL;DR: A review of the main mechanisms through which transparency can reduce corruption is presented in this article, which argues that transparency is insufficient in itself, and needs to be complemented by other types of policies.
589 citations
TL;DR: In this paper, the authors synthesize prior research to advance a conceptual definition of transparency and articulate its dimensions, and posit how transparency contributes to trust in organization-stakeholder relationships.
402 citations
TL;DR: The tension between the pursuit of transparency and the avoidance of blame is at the heart of some commonly observed problems in public management, and suggests that something other than the "bureaucratic" strain of transparency may be called for when those problems are serious as mentioned in this paper.
Abstract: This article explores what happens when the much-discussed doctrine of transparency as a key to good governance meets the widely observed behavioural tendency of blame-avoidance in politics and public administration. It begins by discussing transparency as an idea and distinguishing different strains of the doctrine, proceeds to discuss blame-avoidance and to identify three common types of blame-avoidance strategy, and then explores what can happen when a widely advocated governance doctrine meets a commonly observed type of behaviour. The article identifies ways in which that conjunction can produce nil effects, side-effects and reverse-effects in the pursuit of transparency. It concludes that the tension between the pursuit of transparency and the avoidance of blame is at the heart of some commonly observed problems in public management, and suggests that something other than the ‘bureaucratic’ strain of transparency may be called for when those problems are serious.
391 citations
TL;DR: Open government is not only about openness in informational terms (vision) but also about open government in interactive terms (voice) as discussed by the authors, and a multidisciplinary approach needs to be taken.
Abstract: The term open government is often used to describe initiatives of putting government information on the Internet. This conceptualization is too restricted since open government is not only about openness in informational terms (vision) but also about openness in interactive terms (voice). On the basis of an analysis of 103 articles, this article provides insight into the concepts of openness, transparency and participation, their interactions, and the manner in which they have been discussed in the literature. This analysis shows the differences and similarities between economic, political science and legal perspectives on open government and argues that a multidisciplinary approach needs to be taken. The authors conclude that open government is much too important to leave it to the ‘techies’: scientists and practitioners with backgrounds in law, economics, political science and public administration should also get involved to build sound connections between vision and voice that facilitate active citize...
386 citations
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TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
Abstract: The role of imperfect information in a principal-agent relationship subject to moral hazard is considered. A necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived, and a characterization of the optimal use of such information is given.
7,964 citations
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TL;DR: In this article, the authors developed a model of strategic communication in which a better-informed Sender (S) sends a possibly noisy signal to a Receiver (R), who then takes an action that determines the welfare of both.
Abstract: This paper develops a model of strategic communication, in which a better-informed Sender (S) sends a possibly noisy signal to a Receiver (R), who then takes an action that determines the welfare of both. We characterize the set of Bayesian Nash equilibria under standard assumptions, and show that equilibrium signaling always takes a strikingly simple form, in which S partitions the support of the (scalar) variable that represents his private information and introduces noise into his signal by reporting, in effect, only which element of the partition his observation actually lies in. We show under further assumptions that before S observes his private information, the equilibrium whose partition has the greatest number of elements is Pareto-superior to all other equilibria, and that if agents coordinate on this equilibrium, R's equilibrium expected utility rises when agents' preferences become more similar. Since R bases his choice of action on rational expectations, this establishes a sense in which equilibrium signaling is more informative when agents' preferences are more similar.
3,126 citations
TL;DR: In this paper, the authors study German firms that have switched from the German to an international reporting regime (1AS or U.S. GAAP) and show that proxies for the information asymmetry component of the cost of capital for the switching firms, namely, the bid-ask spread and trading volume behave in the predicted direction compared to firms employing the German reporting regime.
Abstract: Economic theory suggests that a commitment by a firm to increased levels of disclosure should lower the information asymmetry component of the firm's cost of capital. But while the theory is compelling, so far empirical results relating increased levels of disclosure to measurable economic benefits have been mixed. One explanation for the mixed results among studies using data from firms publicly registered in the United States is that, under current U.S. reporting standards, the disclosure environment is already rich. In this paper, we study German firms that have switched from the German to an international reporting regime (1AS or U.S. GAAP), thereby committing themselves to increased levels of disclosure. We show that proxies for the information asymmetry component of the cost of capital for the switching firmsnamely, the bid-ask spread and trading volume-behave in the predicted direction compared to firms employing the German reporting regime.
2,984 citations
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TL;DR: The authors studied how a person's concern for a future career may influence his or her incentives to put in effort or make decisions on the job, and found that career motives can be beneficial as well as detrimental, depending on how well the two kinds of capital returns are aligned.
Abstract: The paper studies how a person's concern for a future career may influence his or her incentives to put in effort or make decisions on the job. In the model, the person's productive abilities are revealed over time through observations of performance. There are no explicit output contingent contracts, but since the wage in each period is based on expected output and expected output depends on assessed ability, an implicit contact' links today's performance to future wages. An incentive problem arises from the person's ability and desire to influence the learning process, and therefore the wage process, by taking unobserved actions that affect today's performance. The fundamental incongruity in preferences is between the individual's concern for human capital returns and the firm's concern for financial returns. The two need to be only weakly related. It is shown that career motives can be beneficial as well as detrimental, depending on how well the two kinds of capital returns are aligned.
1,344 citations
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TL;DR: In this article, career concerns are taken into account, and the authors find that the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement, because a longer prospective career increases the return to changing the market's belief.
Abstract: This paper studies career concerns -- concerns about the effects of current performance on future compensation -- and describes how optimal incentive contracts are affected when career concerns are taken into account Career concerns arise frequently: they occur whenever the market uses a worker's current output to update its belief about the worker's ability and competition then forces future wages (or wage contracts) to reflect these updated beliefs Career concerns are stronger when a worker is further from retirement, because a longer prospective career increases the return to changing the market's belief In the presence of career concerns, the optimal compensation contract optimizes total incentives -- the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract Thus, the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement We find empirical support for this prediction in the relation between chief-executive compensation and stock-market performance
1,302 citations