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Regulating misinformation

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Author Info

  • Glaeser, Edward L.
  • Ujhelyi, Gergely

Abstract

Governments have responded to misleading advertising by banning it, engaging in counter-advertising and taxing and regulating the product. In this paper, we consider the welfare effects of those different responses to misinformation. While misinformation lowers consumer surplus, its effect on social welfare is ambiguous. Misleading advertising leads to over-consumption but that may be offsetting the underconsumption associated with oligopoly outputs. If all advertising is misinformation then a tax or quantity restriction on advertising maximizes welfare, and other policy interventions are inferior. If firms undertake quality improving investments that are complementary to misinformation, then combining taxes or bans on misleading advertising with other policies can increase welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 94 (2010)
Issue (Month): 3-4 (April)
Pages: 247-257

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Handle: RePEc:eee:pubeco:v:94:y:2010:i:3-4:p:247-257

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Misinformation Advertising Regulation Health;

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References

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  1. Kyle Bagwell, 2005. "The Economic Analysis of Advertising," Discussion Papers 0506-01, Columbia University, Department of Economics.
  2. David M. Cutler & Edward L. Glaeser & Jesse M. Shapiro, 2003. "Why Have Americans Become More Obese?," Harvard Institute of Economic Research Working Papers 1994, Harvard - Institute of Economic Research.
  3. Becker, Gary S & Murphy, Kevin M, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 941-64, November.
  4. Peltzman, Sam, 1981. "The Effects of FTC Advertising Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 403-48, December.
  5. Simon P. Anderson & Régis Renault, 2002. "Advertising Content," Virginia Economics Online Papers 362, University of Virginia, Department of Economics.
  6. Shapiro, Jesse & Glaeser, Edward & Cutler, David, 2003. "Why Have Americans Become More Obese," Scholarly Articles 2640583, Harvard University Department of Economics.
  7. Shleifer, Andrei & Mullainathan, Sendhil & Schwartzstein, Joshua, 2008. "Coarse Thinking and Persuasion," Scholarly Articles 11022284, Harvard University Department of Economics.
  8. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 505-540, May.
  9. Sauer, Raymond D & Leffler, Keith B, 1990. "Did the Federal Trade Commission's Advertising Substantiation Program Promote More Credible Advertising?," American Economic Review, American Economic Association, vol. 80(1), pages 191-203, March.
  10. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government.
  11. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  12. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
  13. David M. Cutler & Edward L. Glaeser, 2009. "Why Do Europeans Smoke More than Americans?," NBER Chapters, in: Developments in the Economics of Aging, pages 255-282 National Bureau of Economic Research, Inc.
  14. Jon Nelson, 2005. "Beer Advertising and Marketing Update: Structure, Conduct, and Social Costs," Review of Industrial Organization, Springer, vol. 26(3), pages 269-306, December.
  15. Stephen Farr & Carol Horton Tremblay & Victor Tremblay, 2001. "The Welfare Effect of Advertising Restrictions in the U.S. Cigarette Industry," Review of Industrial Organization, Springer, vol. 18(2), pages 147-160, March.
  16. Franklin M. Fisher & John J. McGowan, 1979. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 726-727, Autumn.
  17. Hamilton, Stephen F. & Zilberman, David, 2006. "Green markets, eco-certification, and equilibrium fraud," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 627-644, November.
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Citations

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Cited by:
  1. Kosfeld, Michael & Schüwer, Ulrich, 2011. "Add-on Pricing, Naive Consumers, and the Hidden Welfare Costs of Education," IZA Discussion Papers 6061, Institute for the Study of Labor (IZA).
  2. Kosfeld, Michael & Schüwer, Ulrich, 2014. "Add-on pricing in retail financial markets and the fallacies of consumer education," SAFE Working Paper Series 47, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  3. Eftichios Sartzetakis & Anastasios Xepapadeas & Emmanuel Petrakis, 2012. "The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 52(3), pages 347-368, July.
  4. Matsumura, Toshihiro & Sunada, Takeaki, 2013. "Advertising competition in a mixed oligopoly," Economics Letters, Elsevier, vol. 119(2), pages 183-185.
  5. Edward L. Glaeser, 2013. "The Supply of Environmentalism," NBER Working Papers 19359, National Bureau of Economic Research, Inc.
  6. Keisuke Hattori & Keisaku Higashida, 2012. "Who Benefits from Misleading Advertising?," Discussion Paper Series 85, School of Economics, Kwansei Gakuin University, revised Mar 2012.
  7. Keisuke Hattori & Keisaku Higashida, 2011. "Misleading Advertising and Minimum Quality Standards," Discussion Paper Series 74, School of Economics, Kwansei Gakuin University, revised Aug 2011.
  8. Soham Baksi & Pinaki Bose & Di Xiang, 2012. "Credence Goods, Consumer Misinformation, and Quality," Departmental Working Papers 2012-01, The University of Winnipeg, Department of Economics.
  9. Keisuke Hattori & Keisaku Higashida, 2011. "When Government Misleads US: Sending Misinformation as Protectionist Devices," Discussion Paper Series 75, School of Economics, Kwansei Gakuin University, revised Aug 2011.
  10. Edward L. Glaeser & Yueran Ma, 2013. "The Supply of Gender Stereotypes and Discriminatory Beliefs," NBER Chapters, in: Human Capital in History: The American Record National Bureau of Economic Research, Inc.
  11. Jonathan Zinman & Eric Zitzewitz, 2012. "Wintertime for Deceptive Advertising?," NBER Working Papers 17829, National Bureau of Economic Research, Inc.

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