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Influencing the Misinformed Misbehaver: An Analysis of Public Policy towards Uncertainty and External Effects

  • F. Barigozzi
  • B. Villeneuve

We study a situation where the government influences consumers` behavior by providing both information and incentives. More generally, we propose a methodology for solving models of signal cum cheap talk. We develop the case of consumption choice in the presence of uncertainty and external effects. The institutions used by delivering biased information to the misbehaver. We study the equilibrium trade-off between informing and giving incentives. Environmental tax policy, anti-smoking campaigns and policy against antibiotics over-consumption serve as illustration.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 404.

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Date of creation: 2001
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Handle: RePEc:bol:bodewp:404
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  1. Van Der Ploeg, F. & Bovenberg, A.L., 1993. "Environmental Policy, Public Goods and the Marginal Cost of Public Funds," Papers 9345, Tilburg - Center for Economic Research.
  2. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  3. Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
  4. Brown, Gardner & Layton, David F., 1996. "Resistance economics: social cost and the evolution of antibiotic resistance," Environment and Development Economics, Cambridge University Press, vol. 1(03), pages 349-355, July.
  5. Manelli, Alejandro M, 1996. "Cheap Talk and Sequential Equilibria in Signaling Games," Econometrica, Econometric Society, vol. 64(4), pages 917-42, July.
  6. Austen-Smith, David & Banks, Jeffrey S., 2000. "Cheap Talk and Burned Money," Journal of Economic Theory, Elsevier, vol. 91(1), pages 1-16, March.
  7. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  8. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier.
  9. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, March.
  10. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
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