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The Timing of Choice-Enhancing Policies

Author

Listed:
  • Takeshi Murooka
  • Marco A. Schwarz

Abstract

Recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers. We analyse the optimal timing of such choice-enhancing policies when a firm can strategically react to them. In our model, a firm provides an automatic enrolment or renewal to consumers. We show that a conventional choice-enhancing policy, which decreases consumers’ switching costs when they are initially enroled, can be detrimental to consumer and social welfare. By contrast, an alternative policy that decreases consumers’ switching costs when the firm charges a higher price for the service increases consumer and social welfare more robustly.

Suggested Citation

  • Takeshi Murooka & Marco A. Schwarz, 2016. "The Timing of Choice-Enhancing Policies," CESifo Working Paper Series 5983, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5983
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp5983.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
    3. Alessandro Ispano & Peter Schwardmann, 2018. "Competition over Cursed Consumers," CESifo Working Paper Series 7046, CESifo Group Munich.

    More about this item

    Keywords

    active choice; procrastination; present bias; automatic enrolment; automatic renewal; consumer naivete;

    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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