Selective Disclosure of Public Information: Who Needs to Know?

Credibly communicating information for agents to act upon is a challenge for central planners and managers. This paper studies the optimal disclosure policy when the relative accuracy (reliability) of the public information cannot be veri…ed and when agents’actions are either strategic complements or substitutes for each other. We …nd that while disclosure of public information improves social surplus when its accuracy is known, access to public information may be restricted to select agents in order to credibly communicate its reliability. Speci…cally, we show that a separating equilibrium exists where, when agents’actions are strategic complements (substitutes), the planner with more (less) accurate public information discloses the information only to a subset of the agents. The rationale for this pattern of selective disclosure is best understood as a response to agents’misuse or misinterpretation of public announcements in di¤erent strategic settings. Further, when agents di¤er in the accuracy of their private information, we show that it is optimal to selectively disclose to those with relatively less accurate private information. Our analyses have implications for how public information is best disseminated when agents’actions have strategic e¤ects on each other, such as those involving controlling congestion, beauty contests, macroeconomic stabilizations and promoting uniformity and standardization in design and adoption. Preliminary draft and comments welcome. Qi Chen and Tracy Lewis acknowledge …nancial support from the Fuqua School of Business at Duke University. Yun Zhang acknowledges …nancial support from George Washington University School of Business and Fuqua School of Business at Duke University. We appreciate comments from workshop participants at Duke University, George Washington University, and the Chicago-Minnesota Accounting Theory Conference. We also thank Bjorn Jorgensen for helpful discussions. Address correspondence to Qi Chen at [email protected], Tracy Lewis at [email protected] and Yun Zhang at [email protected]. presented by Tracy Lewis FRIDAY, Mar. 10, 2011 1:30 pm 3:00 pm, Room: HOH-706 USC FBE APPLIED ECONOMICS WORKSHOP