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When Does Libertarian Paternalism Work?

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Author Info

  • Bruce Ian Carlin
  • Simon Gervais
  • Gustavo Manso

Abstract

We develop a theoretical model to study the effects of libertarian paternalism on knowledge acquisition and social learning. Individuals in our model are permitted to appreciate and use the information content in the default options set by the government. We show that in some settings libertarian paternalism may decrease welfare because default options slow information aggregation in the market. We also analyze what happens when the government acquires imprecise information about individuals, and characterize its incentives to avoid full disclosure of its information to the market, even when it has perfect information. Finally, we consider a market in which individuals can sell their information to others and show that the presence of default options causes the quality of advice to decrease, which may lower social welfare.

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File URL: http://www.nber.org/papers/w15139.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15139.

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Date of creation: Jul 2009
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Handle: RePEc:nbr:nberwo:15139

Note: CF LE PE POL
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Cited by:
  1. SATO, Motohiro & SAITO, Makoto, 2011. "The context effect in the choice of earthquake insurance contracts in Japan," Discussion Papers 2011-10, Graduate School of Economics, Hitotsubashi University.
  2. V. Smith & Eric Moore, 2010. "Behavioral Economics and Benefit Cost Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 217-234, June.

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