Early Decisions: A Regulatory Framework
AbstractWe 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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Find related papers by JEL classification:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D69 - Microeconomics - - Welfare Economics - - - Other
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-PBE-2006-01-24 (Public Economics)
- NEP-REG-2006-01-24 (Regulation)
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