The literature on the private provision of public goods suggests an inverse relationship between incentives to contribute and group size. We find, however, that after an exogenous reduction of group size at Chinese Wikipedia, the nonblocked contributors decrease their contributions by 42.8 percent on average. We attribute the cause to social effects: contributors receive social benefits that increase with both the amount of their contributions and group size, and the shrinking group size weakens these social benefits. Consistent with our explanation, we find that the more contributors value social benefits, the more they reduce their contributions after the block.

Utilizing a unique and novel setting of disclosure mandate threshold under Regulation AB (Reg AB), we investigate the relationship between disclosure and trust in asset securitization. Post-Reg AB enactment, we observe a significant bunching of originators just below the disclosure threshold. Less trustworthy originators are more likely to adjust their portfolio sizes to remain below this threshold, particularly when loan originators and deal sponsors are unaffiliated, which are cases in which disclosure plays a greater role in reducing information asymmetry. Additionally, these originators are more likely to misrepresent loan quality. Our findings reveal a strong relationship between disclosure and trust—trustworthy originators disclose more and originate higher-quality loans, while less trustworthy originators disclose less and produce lower-quality loans.

Examining the contractual disclosures during the sale of private‐label residential mortgage‐backed securities before the 2008 financial crisis, we find that textual contents in the risk‐factor section predict subsequent losses and yet were not reflected in pricing. Insurance companies, especially life insurers and insurers with low regulatory capital ratios, are more exposed to textual risks. Consistent with issuers hedging litigation risks with disclosure, we find that textual contents are associated with second‐lien underreporting and preissuance written communications. Overall, we find that investors neglected risks in the purportedly safe assets before the crisis.

We offer the first empirical evidence on the adverse effect of credit default swap (CDS) coverage on subprime mortgage defaults. Using a large database of privately securitized mortgages, we find that higher defaults concentrate in mortgage pools with concurrent CDS coverage, and within these pools the loans originated after or shortly before the start of CDS coverage have an even higher delinquency rate. The results are robust across zip code and origination quarter cohorts. Overall, we show that CDS coverage helped drive higher mortgage defaults during the financial crisis.