From calorie counts to vehicle report cards, scientists study how to make disclosures work for consumers

We tend to think of transparency as a good thing: knowledge is power, the old adage goes. Public disclosures ranging from calorie counts to gas mileage ratings to restaurant cleanliness all seem seem to empower people to make better choices—and to provide the competitive pressure that forces businesses to strive to do better.

But is transparency always best? A team of researchers from the Boston University School of Management and the Harvard Kennedy School think that transparency needs to be studied, to figure out how and when it is most effective—and when it can backfire. For example, one study found that hospital report cards that reported patient outcomes provided an incentive for hospitals to avoid admitting the sickest patients. The end result? In the short term, report cards actually increased health care costs and resulted in worse health outcomes, especially for the sickest people.

In a policy essay published Thursday in the journal Science, researchers propose that a science of transparency be further developed, to learn more about which disclosures are helpful, and how to craft transparency systems to be most effective.

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For example, the Toxics Release Inventory that requires companies to disclose the amount of toxic chemicals they have emitted has had some effects that merely regulating emissions might not have, said Archon Fung, a professor of public policy at the Kennedy School. The disclosure requirement puts external pressures on businesses, such as public scrutiny and comparison to competitors. Those pressures provide an incentive for decreasing toxic chemical releases that are unlike a traditional approach of imposing limits on each chemical. Another good example, he said, of a disclosure that ends up solving a problem that might have otherwise been approached through regulation, is a government rating of the risk of a vehicle rolling over.

In other cases, however, information can have a neutral or even negative effect. In the early days of water quality disclosures, Fung said, water utilities would disclose scientific descriptions of the levels of contaminants found in their water—parts per million of chemicals like lead or arsenic.

“It’s hard for anyone who’s not an environmental health person to understand it, and the second reason is it’s pretty unclear what you’re supposed to do with that information, because just about everyone lives in a jurisdiction with only one utility,” Fung said.

Figuring how to leverage available information for the common good may be even more important as the Internet dramatically changes what people can easily find out, putting information that would have once been available only to specialists or people willing to put in hours of research at the public’s fingertips. The team has gotten increasingly interested not only in the transparency of governments and corporations, but in the social transparency that comes with social networking.

“One of the new dynamics of transparency ... we’re really interested in now, is what we see is the next frontier of transparency, in which it’s not the government that is collecting and providing information, but citizens and individuals: Yelp, TripAdvisor,” Fung said. “There is a big question about whether there are good versions and applications of this phenomenon in the public sector, and that’s what we’re getting ready to study.”

Fung, part of the Transparency Policy Project, said that his own interest in making transparency more effective stems in part from his experience as a patient. Since college, Fung has had an arthritis-like autoimmune condition. He has sporadically been on serious drugs for it and receives excellent medical care, but notes that doctors are focused on pharmaceuticals.

Fung has become intrigued by online discussion boards where patients report tremendous benefits from simple dietary changes. He is well aware of the important difference between inspiring stories from individuals and a rigorous study, but at the same time he feels that the detailed reports of other people could be harnessed for good, in aggregate. He also realizes the pitfalls of transparency that could make bad advice or false information just as available as empowering information.

Still, Fung hopes we are on the cusp of a new kind of crowdsourced transparency that could make all sorts of information and experiences more useful—but only if the systems that enable it are crafted in the right way.