FORCED INFORMATION DISCLOSURE AND THE FALLACY OF TRANSPARENCY IN MARKETS

Authors

  • Timothy N. Cason,

    1. Cason: Professor of Economics, Department of Economics, Krannert School of Management, Purdue University, 403 West State Street, West Lafayette, IN 47907-2056. Phone 1-765-494-1737, Fax 1-765-494-9658, E-mail cason@purdue.edu
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  • Charles R. Plott

    1. Plott: Edward S. Harkness Professor of Economics and Political Science, Division of the Humanities and Social Sciences, 228-77, California Institute of Technology, Pasadena, CA 91125. Phone 1-626-395-4209, Fax 1-626-395-8580, E-mail cplott@hss.caltech.edu
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Abstract

A theory advanced in regulatory hearings holds that market performance will be improved if one side of the market is forced to publicly reveal preferences. For example, wholesale electricity producers claim that retail electricity consumers would pay lower prices if wholesale public utility demand is disclosed to producers. Experimental markets studied here featured decentralized, privately negotiated contracts, typical of the wholesale electricity markets. Two conclusions emerge: (1) such markets generally converge to the competitive equilibrium and (2) forced disclosure works to the disadvantage of the disclosing side. Information disclosure would result in higher wholesale and thus higher retail electricity prices. (JEL L50, L94, D43)

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