Abstract: Disclosure laws can serve many different purposes. This Article is the first to distinguish two of those purposes, which I call static and dynamic disclosures. In brief, static disclosures aim to improve consumers' choice from among the set of products that are already available on the market. By contrast, dynamic disclosures aim to improve the range of products from which consumers must choose, by sharpening sellers' incentives to improve the quality of their products.
The Article also discusses the various ways in which the effects of static and dynamic disclosures might be measured and evaluated. In doing so, it examines and mildly criticizes the position recently advanced by Professors Omri Ben-Shahar and Carl Schneider, who argue (approximately) that disclosure almost never works, and that it should not even be considered as a policy option. While I agree with much else that Professors Ben-Shahar and Schneider say, their claim that disclosures almost never work is far too broad.
In this Article I have three ambitions. First, I hope to show that we cannot evaluate the success or failure of any disclosure law without considering the possible goals that law might have had. I do not take this point to be hugely controversial.
My second ambition, however, is to improve our understanding of two particular purposes that disclosures might serve. To this end, I distinguish here between what I will call static and dynamic disclosures. Static disclosures take a consumer's existing range of choices as more or less given, and aim merely to improve a consumer's choice from among the existing choice set. By contrast, dynamic disclosures seek to improve the existing choice set by creating incentives for sellers to improve the quality of their offerings. This distinction has not yet been discussed in the disclosure literature, but I hope to show that it has important implications for how the success or failure of disclosures can best be measured.
Finally, my third ambition is to illustrate the perils of trying to analyze disclosure laws without paying attention to the specific purposes that different disclosure laws might serve. To illustrate these perils, I use as a recurring example the recent and provocative Article, "The Failure of Mandated Disclosure," by Professors Omri Ben-Shahar and Carl E. Schneider.1 It is perhaps unfair to single out this Article in such a way, for (as I discuss below) there is much that is good in the Article, and I agree with many of its conclusions. However, the systematic way in which that Article analyzes a wide range of disclosure laws (which is one of the Article's strengths) also makes it an ideal Article in which to find an occasional cautionary example showing what happens when the purposes of disclosure laws are not properly understood.
With that in mind, let us proceed. Section I, below, provides some necessary background by describing Professors Ben-Shahar and Schneider's views in slightly more detail, and by relating their Article to the rest of the academic literature on disclosures. Sections II and III then develop at more length the distinction I wish to draw between static and dynamic disclosures, with Section III providing an economic interpretation of that distinction. Finally, Sections IV through VI discuss in more detail some criteria for evaluating the success or failure of various kinds of disclosure, to show how those evaluations should differ depending on whether the disclosure has static or dynamic aims.
Mandatory disclosure, we are told, is a regulatory technique that is "much used but little remarked."2 However, while I fully agree that disclosures are "much used," the case for them being "little remarked" is doubtful. Professors Ben-Shahar and Schneider themselves cite dozens of studies of the effects of various disclosure regimes; and they could easily have added more, had they not worried about overburdening their readers. …