The Hydraulic Theory of Disclosure Regulation and Other Costs of Disclosure

By Geoffrey Manne on March 17, 2011

By requiring firms to disclose information to the public, such as regular filings with the SEC, regulators are hoping that such transparency provide an ultimate benefit to shareholders. However, Dr. Geoffrey Manne, Director at Global Economics Group, in The Hydraulic Theory of Disclosure Regulation and Other Costs of Disclosure (58 Ala. Law Review 473, 2007), establishes the possibility this requirement may impose additional costs on the firm that are borne by shareholders, which outweigh their perceived benefits. In addition, Dr. Manne raises concern that disclosure regulation triggers behavioral hydraulics which may lead to an undesirable shift in underlying behavior as well as an undesirable shift in the pool of candidates for corporate executive positions. The Hydraulic Theory of Disclosure Regulation and Other Costs of Disclosure