The timing of choice-enhancing policies

Recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers. We analyze the optimal timing of such choice-enhancing policies when a firm can strategically react to them. In the model, a firm provides a contract with automatic renewal. We show that a policy intending to enhance consumers’ choices when they choose a contract can be detrimental to welfare. By contrast, a choice-enhancing policy at the time of contract renewal increases welfare more robustly. Our results highlight that policies should be targeted in timing to the actual choice inefficiency.