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Optimal Disclosure Mandate in Supply Chains

Author

Listed:
  • Tsz-Ning Wong

    (Universitat de Barcelona)

  • Lily Ling Yang

    (University of Mannheim)

  • Andrey Zhukov

    (Compass Lexecon)

Abstract

We study a model in which a firm can acquire conclusive evidence about its supplier's social and environmental impacts. We identify the disclosure mandate that maximizes market information. A disclosure mandate determines whether (i) the firm's investigation effort is observable by the market and (ii) obtained evidence is disclosed to the market. When the supply chain visibility is low, the firm does not know its supplier's impacts. The combination of covert investigation and voluntary disclosure of obtained evidence incentivizes the firm to acquire evidence and constitutes the optimal disclosure mandate. When the supply chain visibility is high, the firm knows its supplier's impacts. Overt investigation and mandatory disclosure of obtained evidence together enable the firm to signal its private knowledge through the chosen investigation effort and maximize market information. The sharp contrast of these two cases highlights the importance of supply chain visibility in determining the optimal mandate.

Suggested Citation

  • Tsz-Ning Wong & Lily Ling Yang & Andrey Zhukov, 2024. "Optimal Disclosure Mandate in Supply Chains," UB School of Economics Working Papers 2024/468, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:468web
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    File URL: http://hdl.handle.net/2445/214878
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    References listed on IDEAS

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    More about this item

    Keywords

    Supply chain transparency; Mandatory disclosure; Voluntary disclosure;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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