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Model-based evaluation of cooling-off policies

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  • Michel, Christian
  • Stenzel, André

Abstract

This paper studies the ex-ante prediction and ex-post evaluation of the effects of cooling-off policies when consumers may exhibit a projection bias. We set up a theoretical model in which a firm optimally reacts to consumers' preferences and the regulatory framework and show that neither the adoption of a mandatory cooling-off period nor a return policy is generically superior or consumer welfare improving. We then analyze how market-level data can help to evaluate the policies ex post using baseline statistics. This exploits the firm's optimal response to a policy. With a return policy, data on quantities, return frequencies, and market size are sufficient to always assess the directional change in consumer welfare, while aggregate quantities alone are sufficient with a mandatory cooling off period. We discuss robustness of the model predictions and ex-post assessment to a variety of modifications, and discuss the benefits of the approach for policy design.

Suggested Citation

  • Michel, Christian & Stenzel, André, 2021. "Model-based evaluation of cooling-off policies," Games and Economic Behavior, Elsevier, vol. 129(C), pages 270-293.
  • Handle: RePEc:eee:gamebe:v:129:y:2021:i:c:p:270-293
    DOI: 10.1016/j.geb.2021.05.012
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    More about this item

    Keywords

    Cooling-off; Equilibrium-based inference; Identification of nonstandard preferences; Projection bias; Behavioral economics;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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