Job Market Paper
Prosocial Disclosure and Contracts
Abstract: This paper studies how regulations mandating the disclosure of prosocial outcomes (e.g., ESG performance) affect prosocial contracts (e.g., sustainability-linked loans). I develop a multitasking principal–agent model with limited liability and private agent types. The agent exerts costly effort on two tasks: one yielding an unverifiable outcome and another producing an outcome that can be verifiably disclosed at a cost. The agent’s private type captures intrinsic utility over the outcomes. While mandatory disclosure can create welfare by providing information that enables new contracts, it may affect the efficiency of contracts that would otherwise arise under a voluntary regime. Two mechanisms drive this effect. First, the principal may offer stronger incentives under voluntary disclosure to induce the agent’s participation. Second, voluntary disclosure can serve a screening role, allowing the principal to identify intrinsically motivated agents. When the voluntary regime results in non-disclosure (full disclosure), mandating disclosure enhances (reduces) contracting efficiency. In cases where voluntary disclosure is partial, mandatory disclosure reduces welfare when prosocial and financial objectives are strongly complementary, but can improve welfare when principal free-riding weakens incentives for motivated agents.