Disclosure of Information in Regulatory Proceedings

Abstract

This article examines how different rules for presentation of evidence affect verdicts in regulatory hearings and examines the welfare and efficiency properties these procedures exhibit. The hearing is modeled as a game of imperfect information in which the respondent is privately informed about the validity of his case. The respondent may present evidence to support his case. The commission observes whether the respondent presents evidence and observes the nature of the evidence presented to update its beliefs about the validity of the case. Based on these beliefs and the standard of proof, the commission decides whether the respondent's application should be accepted or rejected. The sequential equilibria of this game are examined for their implications regarding (i) the impact of information accuracy and disclosure costs on the outcome of the hearing and the welfare of the respondent, and (ii) how the burden of proof undertaken by the respondent to prove his case is affected by disclosure costs and the information accuracy.

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