Random Disclosure Costs: A Unified Theory of Disclosure

Abstract

We propose a unified framework for a class of evidence games in which a sender, seeking to increase posterior expectations (e.g., a market price), chooses whether to reveal or withhold her information. Our model nests several classic models, including type-dependent disclosure costs or benefits, uncertain information endowment, and the market for lemons. Frictions are captured as random disclosure costs that are privately known to the sender and noisily inferred by the receiver. We derive a simple characterization of the equilibrium and show that it features increasing disclosure for lower frictions or greater fundamental uncertainty. Further, with high uncertainty or low frictions, greater uncertainty about disclosure costs decreases the likelihood of disclosure. Positive costs do not necessarily rule out unraveling to full disclosure, especially when outcomes have heavy tails or when disclosure costs are not constant. Finally, we demonstrate that the model can be estimated with a simple probit, suggesting that cost uncertainty is descriptive of real-world behavior.