On the optimality of full disclosure

TL;DR

This paper demonstrates that full disclosure is often the optimal strategy for a privately-informed sender under broad conditions, simplifying analysis in principal-agent models.

Contribution

It establishes a sufficient condition under which full disclosure is optimal, applicable to a wide range of utility functions and modeling assumptions.

Findings

Full disclosure is optimal under common principal-agent assumptions.

The condition is interpretable and verifiable from utility functions.

It generalizes known conditions for specific cases.

Abstract

A privately-informed sender can commit to any disclosure policy towards a receiver. We show that full disclosure is optimal under a sufficient condition with some desirable properties. First, it speaks directly to the utility functions of the parties, as opposed to the indirect utility function of the sender; this makes it easily interpretable and verifiable. Second, it does not require the sender's payoff to be a function of the posterior mean. Third, it is weaker than the known conditions for some special cases. With this, we show that full disclosure is optimal under modeling assumptions commonly used in principal-agent papers.