Required disclosures are ubiquitous in everything from financial statements to loan documents to consumer goods, and many people believe such disclosures serve an important purpose. Omri Ben-Shahar strongly disagrees.
“Mandated disclosure may be the most common and least successful regulatory technique in American law,” Ben-Shahar, a professor of law at the University of Chicago Law School, writes in an excerpt from his book “More Than You Wanted to Know: The Failure of Mandated Disclosure,” that he posted Tuesday on the Harvard Law Forum on Corporate Governance and Financial Regulation.
“Mandated disclosure,” Ben-Shahar writes, “is like Kennedy after the Bay of Pigs: ‘The worse I do, the more popular I get.’ Or like Dr. Johnson’s description of second marriages: ‘the triumph of hope over experience.’”
From Ben-Shahar’s perspective, the problems created by the trend toward mandated disclosure include its proliferation across many different types of situations and documents; the failure by many people to read such disclosures carefully; and the frequent inability of those who do read the fine print to fully comprehend what they are reading. And, Ben-Shahar argues, merely simplifying or changing the way such disclosures are presented or formatted is unlikely to solve the problems because of the varied ways in which readers digest and understand information.
In short, Ben-Shahar concludes: “Disclosure does not work, cannot be fixed, and can do more harm than good. It has failed time after time, in place after place in area after area, in method after method, in decade after decade.”
Referring to himself and his coauthor, Carl Schneider, a professor of both law and medicine at the University of Michigan, Ben-Shahar adds “We are often asked what should replace mandated disclosure. If mandated disclosure does not work, little is lost in abandoning it. And if mandated disclosure cannot work, the rational response is not to search for another (doomed) panacea, but to bite the bullet and ask which social problems actually need a regulatory response and what response might actually ameliorate the problem.”
