NBER Working Papers and Publications
|June 2010||Competing for Attention in Financial Markets|
with Bruce Ian Carlin, Shaun William Davies: w16085
Competition for positive attention in financial markets frequently resembles a tournament, where superior relative performance and greater visibility are rewarded with convex payoffs. We present a rational expectations model in which firms compete for such positive attention and show that higher competition for this prize makes discretionary disclosure less likely. In the limit when the market is perfectly competitive, transparency is minimized. We show that this effect persists when considering general prize structures, prizes that change in size as a result of competition, endogenous prizes, prizes granted on the basis of percentile, product market competition, and alternative game theoretic formulations. The analysis implies that competition is unreliable as a driver of market transpare...
Published: Competition, Comparative Performance, and Market Transparency (with Shaun Davies and Andrew Iannaccone). American Economic Journal: Microeconomics 4: 202-237, 2012.