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Trust, Transparency, and Complexity

delete2023-01-30
delete10
PRE
AI
R
Richard T. Thakor *
R
Robert C. Merton
DOI：10.1093/rfs/hhad011delete
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Abstract

Abstract

En 中文
This paper develops a theory that generates an equilibrium relationship between product complexity, transparency, and trust in firms. Complexity, transparency, and the evolution of trust are all endogenous, and equilibrium transparency is nonmonotonic. The least-trusted firms choose the lowest product complexity, remain opaque, and substitute ex ante third-party verification for information disclosure and trust. Firms with an intermediate level of trust choose an intermediate level of complexity and transparency through disclosure, with more trusted firms choosing greater complexity and lower transparency. The most-trusted firms choose maximum complexity while remaining opaque, eschewing both verification and disclosure.
Keywords:
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Journal

Review of Financial Studies cover
Review of Financial Studies
IF:
5.4
Papers:
2.8K
Citations:
3.0W

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No organization information available