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Imperfect Consumers and Welfare Comparisons of Policies Concerning Information and Regulation

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  • Claude S. Colantoni
  • Otto A. Davis
  • Malati Swaminuthan

Abstract

Consumers possess limited capacity to process technical information concerning the characteristics of products. As a result, two forms of regulation (e.g., by the FDA or FTC) sometimes appear in the form of requirements for more understandable information about the product or restrictions on the types of products sold. This paper presents a framework for understanding and evaluating the consequences of these two forms of regulation. By using Lancaster's new approach to consumer theory, we develop a model for consumer behavior with imperfect information processing, which is then used to illustrate methods for evaluating the welfare effects of regulation.

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  • Claude S. Colantoni & Otto A. Davis & Malati Swaminuthan, 1976. "Imperfect Consumers and Welfare Comparisons of Policies Concerning Information and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 602-615, Autumn.
    • Handle: RePEc:rje:bellje:v:7:y:1976:i:autumn:p:602-615
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    Cited by:

    1. Perloff, Jeffrey M, 1981. "Can health warnings and nutritional information lower welfare?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6fc1k3tj, Department of Agricultural & Resource Economics, UC Berkeley.
    2. Kinsey, Jean D. & Roe, Terry L. & Sexauer, Benjamin, 1980. "Imperfect Information, Consumer Theory, And Allocative Error In Consumption," Staff Papers 13742, University of Minnesota, Department of Applied Economics.
    3. Sexauer, Benjamin & Roe, Terry L. & Kinsey, Jean D., 1981. "The Cost Of Inaccurate Automobile Mileage Information," Staff Papers 14056, University of Minnesota, Department of Applied Economics.
    4. Anthony Ogus, 1998. "Regulatory Appraisal: A Neglected Opportunity for Law and Economics," European Journal of Law and Economics, Springer, vol. 6(1), pages 53-68, July.
    5. Jason Shogren & Thomas Crocker, 1991. "Cooperative and noncooperative protection against transferable and filterable externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 1(2), pages 195-214, June.
    6. Paul L. Joskow & Roger G. Noll, 1981. "Regulation in Theory and Practice: An Overview," NBER Chapters, in: Studies in Public Regulation, pages 1-78, National Bureau of Economic Research, Inc.
    7. de Carvalho, Bernardo R. P., 1998. "Food security and hedonic behaviour: a case study of Sao Tome e Principe," Food Policy, Elsevier, vol. 23(3-4), pages 263-275, November.
    8. Konishi, Yoshifumi & Coggins, Jay S., 2008. "Environmental risk and welfare valuation under imperfect information," Resource and Energy Economics, Elsevier, vol. 30(2), pages 150-169, May.
    9. Roe, Terry L. & Sexauer, Benjamin & Kinsey, Jean D., 1981. "The Cost Of Inaccurate Consumer Information: The Case Of The Epa Mileage Figures," Staff Papers 13511, University of Minnesota, Department of Applied Economics.

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