Unilateral disclosure of private information by a regulated firm

It is common practice for regulators to depend on regulated firms for self-monitoring and self-reporting in spite of incentives for misrepresentation. Our analysis provides some justification for such dependence. We study disclosure of information in a game theoretic model of regulation, in which both the regulator and the firm are players in the game. Instead of designing a regulation scheme that compels disclosure, we study unilateral disclosure in a given regulatory framework (a framework which we believe has counterparts in current regulatory practice). The results provide insight to informal relationships between firms and regulators. Because the game is a single period game, the informal relationship in which the disclosures occur cannot be attributed to the existence of reputations and long term relationships.