"Prosocial Disclosure and Contracts ; Value and Values"

Abstract :
I study the disclosure of prosocial performance (e.g., ESG) in a multi-tasking principal-agent framework with limited liability and private agent types. The agent derives utility from exerting costly effort on two tasks that benefit the principal : one with an unverifiable outcome and one with a verifiable outcome upon disclosure. The agent’s private type—their utility and cost structure—influences the principal’s incentive to contract on the verifiable outcome. The main result shows that when voluntary, costly disclosure serves as a screening device for the principal, mandatory disclosure regulation reduces prosocial effort and overall welfare. The model helps explain the limited use and effectiveness of ESG-contingent contracts, despite the availability of verifiable performance metrics.