From Design to Disclosure

TL;DR

This paper explores how hard information disclosure affects bargaining and market outcomes, showing that verifiable information allows senders to achieve commitment payoffs without explicit commitments.

Contribution

It characterizes the entire set of equilibrium payoffs in disclosure games and proves that information design can be approximated by equilibrium disclosure strategies.

Findings

Complete disclosure is worst for the sender due to surplus extraction.

Any information design payoff can be approximated by equilibrium disclosure strategies.

Verifiability enhances the sender's bargaining power in various market settings.

Abstract

This paper studies the role of hard information in contractual and market settings in which the receiver can flexibly adjust allocations and transfers in response to the sender's disclosure. These settings include monopoly pricing, bilateral trade with interdependent values, insurance contracting, and policy negotiations. Across these settings, the sender is worst off if she reveals her type completely: if her type becomes known, the receiver can adjust the terms of trade to extract her surplus. Taking this feature as our central departure from the literature, we characterize the entire set of equilibrium payoffs across these disclosure games. We establish an equivalence result: every payoff profile that can be achieved through information design can also be approximated by an equilibrium of the disclosure game. Thus, hard information enables the sender to attain her commitment payoff without having to commit to an information structure. Moreover, this result highlights how verifiability can empower the sender in settings in which bargaining power resides with the receiver.