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The timing of choice-enhancing policies

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  • Murooka, Takeshi
  • Schwarz, Marco A.

Abstract

Recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers. We analyze the optimal timing of such choice-enhancing policies when a firm can strategically react to them. In the model, a firm provides a contract with automatic renewal. We show that a policy intending to enhance consumers’ choices when they choose a contract can be detrimental to welfare. By contrast, a choice-enhancing policy at the time of contract renewal increases welfare more robustly. Our results highlight that policies should be targeted in timing to the actual choice inefficiency.

Suggested Citation

  • Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
  • Handle: RePEc:eee:pubeco:v:157:y:2018:i:c:p:27-40
    DOI: 10.1016/j.jpubeco.2017.11.001
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    Cited by:

    1. Johannes Johnen, 2019. "Automatic‐renewal contracts with heterogeneous consumer inertia," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(4), pages 765-786, November.
    2. Michel, Christian & Stenzel, André, 2021. "Model-based evaluation of cooling-off policies," Games and Economic Behavior, Elsevier, vol. 129(C), pages 270-293.
    3. Zhengqing Gui & Yangguang Huang & Xiaojian Zhao, 2020. "Financial Fraud and Investor Awareness," HKUST CEP Working Papers Series 202002, HKUST Center for Economic Policy.
    4. Damgaard, Mette Trier & Gravert, Christina, 2018. "The hidden costs of nudging: Experimental evidence from reminders in fundraising," Journal of Public Economics, Elsevier, vol. 157(C), pages 15-26.
    5. Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
    6. Else Gry Bro Christensen & Takeshi Murooka, 2020. "Procrastination and Learning about Self-Control," OSIPP Discussion Paper 20E001, Osaka School of International Public Policy, Osaka University.
    7. Murooka, Takeshi & Schwarz, Marco A., 2019. "Consumer exploitation and notice periods," Economics Letters, Elsevier, vol. 174(C), pages 89-92.
    8. Ericson, Keith M. Marzilli, 2020. "When consumers do not make an active decision: Dynamic default rules and their equilibrium effects," Games and Economic Behavior, Elsevier, vol. 124(C), pages 369-385.
    9. Alessandro Ispano & Peter Schwardmann, 2018. "Competition over Cursed Consumers," CESifo Working Paper Series 7046, CESifo.

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    More about this item

    Keywords

    Active choice; Automatic renewal; Automatic enrollment; Procrastination; Consumer naivete; Present bias;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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