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Early Decisions: A Regulatory Framework

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  • John Beshears
  • James J. Choi
  • David Laibson
  • Brigitte Madrian

Abstract

We describe a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing - which is what Early Decisions enable - is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11920.

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Date of creation: Jan 2006
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Publication status: published as Beshears, John, James Choi, David Laibson, and Brigitte C. Madrian. “Early Decisions: A Regulatory Framework." Swedish Economic Policy Review 12,2 (2005): 41-60.
Handle: RePEc:nbr:nberwo:11920

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  1. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  2. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory And Evidence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1261-1303, November.
  3. Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Joni Hersch, 2005. "Smoking Restrictions as a Self-Control Mechanism," Journal of Risk and Uncertainty, Springer, Springer, vol. 31(1), pages 5-21, July.
  5. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, American Economic Association, vol. 81(2), pages 1-19, May.
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