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Most sellers of goods or services are not legally compelled to provide particular information about their products to potential buyers; they must merely avoid making false claims. One important exception relates to securities. Firms that issue securities in the public markets must provide affirmative disclosures about the securities and the issuer. This is true not only in the United States, but in most developed countries. What accounts for the distinction between securities and other products? Surprisingly few attempts have been made to justify the distinction on efficiency grounds. The initial approach of academic economists to the United States securities laws was to marshal empirical evidence that investors were, or were not, better off after the enactment of these laws.' In response to the empirical debate, a small but influential theoretical literature has developed on the efficiency of mandatory disclosure. 2 That literature identifies the goal of mandatory disclosure as helping market participants to determine prices for securities that accurately

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