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Regulating Misinformation

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Author Info
Edward L. Glaeser
Gergely Ujhelyi

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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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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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Handle: RePEc:nbr:nberwo:12784

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A1 - General Economics and Teaching - - General Economics

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References listed on IDEAS
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  1. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2006. "Coarse Thinking and Persuasion," NBER Working Papers 12720, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring. [Downloadable!] (restricted)
  4. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  5. Franklin M. Fisher & John J. McGowan, 1979. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 726-727, Autumn. [Downloadable!] (restricted)
  6. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr. [Downloadable!] (restricted)
  7. David M. Cutler & Edward L. Glaeser, 2006. "Why Do Europeans Smoke More than Americans?," NBER Working Papers 12124, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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