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Regulating Misinformation

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  • Edward L. Glaeser
  • Gergely Ujhelyi

Abstract

The government has responded to misleading advertising by banning it, engaging in counter-advertising and taxing the product. In this paper, we consider the social welfare effects of those different responses to misinformation. While misinformation lowers consumer surplus, its effect on social welfare is ambiguous. Misleading advertising leads to overconsumption but that may be offsetting the under-consumption associated with monopoly prices. If all advertising is misinformation then a tax or quantity restriction on advertising maximizes social welfare. Other policy interventions are inferior and cannot improve on a pure advertising tax. If it is impossible to tax misleading information without also taxing utility increasing advertising, then combining taxes or bans on advertising with other policies can increase welfare.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12784.

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Date of creation: Dec 2006
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Publication status: published as Glaeser, Edward L. and Gergely Ujhelyi. "Regulating Misinformation." Journal of Public Economics 94, 3-4 (April 2010): 247-257.
Handle: RePEc:nbr:nberwo:12784

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  1. Simon P. Anderson & R�gis Renault, 2006. "Advertising Content," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 93-113, March.
  2. Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc.
  3. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
  4. 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.
  5. Shleifer, Andrei & Mullainathan, Sendhil & Schwartzstein, Joshua, 2008. "Coarse Thinking and Persuasion," Scholarly Articles 11022284, Harvard University Department of Economics.
  6. 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, Springer, vol. 18(2), pages 147-160, March.
  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, MIT Press, vol. 108(4), pages 941-64, November.
  8. 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.
  9. Peltzman, Sam, 1981. "The Effects of FTC Advertising Regulation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 24(3), pages 403-48, December.
  10. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series, Harvard University, John F. Kennedy School of Government 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, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  12. Shapiro, Jesse & Glaeser, Edward & Cutler, David, 2003. "Why Have Americans Become More Obese," Scholarly Articles 2640583, Harvard University Department of Economics.
  13. Jon Nelson, 2005. "Beer Advertising and Marketing Update: Structure, Conduct, and Social Costs," Review of Industrial Organization, Springer, Springer, vol. 26(3), pages 269-306, December.
  14. Franklin M. Fisher & John J. McGowan, 1979. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(2), pages 726-727, Autumn.
  15. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier, Elsevier.
  16. David M. Cutler & Edward L. Glaeser, 2006. "Why Do Europeans Smoke More than Americans?," NBER Working Papers 12124, National Bureau of Economic Research, Inc.
  17. 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, American Economic Association, vol. 80(1), pages 191-203, March.
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Citations

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Cited by:
  1. Soham Baksi & Pinaki Bose & Di Xiang, 2012. "Credence Goods, Consumer Misinformation, and Quality," Departmental Working Papers, The University of Winnipeg, Department of Economics 2012-01, The University of Winnipeg, Department of Economics.
  2. Keisuke Hattori & Keisaku Higashida, 2011. "When Government Misleads US: Sending Misinformation as Protectionist Devices," Discussion Paper Series, School of Economics, Kwansei Gakuin University 75, School of Economics, Kwansei Gakuin University, revised Aug 2011.
  3. Keisuke Hattori & Keisaku Higashida, 2011. "Misleading Advertising and Minimum Quality Standards," Discussion Paper Series, School of Economics, Kwansei Gakuin University 74, School of Economics, Kwansei Gakuin University, revised Aug 2011.
  4. 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.
  5. Jonathan Zinman & Eric Zitzewitz, 2012. "Wintertime for Deceptive Advertising?," NBER Working Papers 17829, National Bureau of Economic Research, Inc.
  6. 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).
  7. Edward L. Glaeser, 2013. "The Supply of Environmentalism," NBER Working Papers 19359, National Bureau of Economic Research, Inc.
  8. 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.
  9. Keisuke Hattori & Keisaku Higashida, 2012. "Who Benefits from Misleading Advertising?," Discussion Paper Series, School of Economics, Kwansei Gakuin University 85, School of Economics, Kwansei Gakuin University, revised Mar 2012.
  10. 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, European Association of Environmental and Resource Economists, vol. 52(3), pages 347-368, July.
  11. Matsumura, Toshihiro & Sunada, Takeaki, 2013. "Advertising competition in a mixed oligopoly," Economics Letters, Elsevier, Elsevier, vol. 119(2), pages 183-185.

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