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Does Government Sponsored Advertising Increase Social Welfare? A Theoretical and Empirical Investigation

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  • Carpio, Carlos E.
  • Isengildina-Massa, Olga

Abstract

The main objective of this study was to analyze the effect of advertising on social welfare in a perfectly competitive market where the level of advertising is chosen by a social planner. The theoretical model revealed that social planner sponsored advertising that increases the equilibrium price of the advertised good can increase society’s welfare if the effect of advertising in consumers’ utility is higher than the consumer welfare reducing price effect (producer welfare is increased by the same amount as the reduction in consumer welfare). The empirical illustration focuses on the U.S. state of South Carolina “buy local” food products campaign. The findings suggest that this government sponsored advertising campaign increases total welfare.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149835.

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Date of creation: 30 May 2013
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Handle: RePEc:ags:aaea13:149835

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Keywords: Agricultural and Food Policy; Consumer/Household Economics; Demand and Price Analysis; Marketing; D11; D12;

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  1. Carpio, Carlos E. & Isengildina-Massa, Olga, 2010. "To Fund or Not to Fund: Assessment of the Potential Impact of a Regional Promotion Campaign," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), August.
  2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  3. Lester G. Telser, 1964. "Advertising and Competition," Journal of Political Economy, University of Chicago Press, vol. 72, pages 537.
  4. Nicholas E. Piggott, 2000. "The Incidence of the Costs and Benefits of Generic Advertising," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 665-671.
  5. Onken, Kathryn A. & Bernard, John C., 2010. "Catching the "Local" Bug: A Look at State Agricultural Marketing Programs," Choices, Agricultural and Applied Economics Association, vol. 25(1).
  6. Cameron, Trudy Ann & James, Michelle D, 1987. "Efficient Estimation Methods for "Closed-ended' Contingent Valuation Surveys," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 269-76, May.
  7. 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.
  8. Cameron, Trudy Ann, 1988. "A new paradigm for valuing non-market goods using referendum data: Maximum likelihood estimation by censored logistic regression," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 355-379, September.
  9. 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.
  10. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  11. Eastwood, David B. & Brooker, John R. & Orr, Robert H., 1987. "Consumer Preferences For Local Versus Out-Of-State Grown Selected Fresh Produce: The Case Of Knoxville, Tennessee," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 19(02), December.
  12. Carol Horton Tremblay & Victor J. Tremblay, 1995. "The Impact Of Cigarette Advertising On Consumer Surplus, Profit, And Social Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 13(1), pages 113-124, 01.
  13. John Bergstrom & Kevin Boyle & Mitsuyasu Yabe, 2004. "Trading Taxes vs. Paying Taxes to Value and Finance Public Environmental Goods," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(4), pages 533-549, August.
  14. Cardon, James H. & Pope, Rulon D., 2003. "Agricultural Market Structure, Generic Advertising, and Welfare," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(02), August.
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