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Regulating Misinformation

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  • Edward L. Glaeser
  • Gergely Ujhelyi

Abstract

The government has responded to misleading advertising by banning it, engaging in counter-advertising and taxing the product. In this paper, we consider the social welfare effects of those different responses to misinformation. While misinformation lowers consumer surplus, its effect on social welfare is ambiguous. Misleading advertising leads to overconsumption but that may be offsetting the under-consumption associated with monopoly prices. If all advertising is misinformation then a tax or quantity restriction on advertising maximizes social welfare. Other policy interventions are inferior and cannot improve on a pure advertising tax. If it is impossible to tax misleading information without also taxing utility increasing advertising, then combining taxes or bans on advertising with other policies can increase welfare.

Suggested Citation

  • Edward L. Glaeser & Gergely Ujhelyi, 2006. "Regulating Misinformation," NBER Working Papers 12784, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12784
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    References listed on IDEAS

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    7. Stephen Farr & Carol Horton Tremblay & Victor Tremblay, 2001. "The Welfare Effect of Advertising Restrictions in the U.S. Cigarette Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(2), pages 147-160, March.
    8. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2008. "Coarse Thinking and Persuasion," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 577-619.
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    12. David M. Cutler & Edward L. Glaeser, 2009. "Why Do Europeans Smoke More than Americans?," NBER Chapters,in: Developments in the Economics of Aging, pages 255-282 National Bureau of Economic Research, Inc.
    13. Peltzman, Sam, 1981. "The Effects of FTC Advertising Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 403-448, December.
    14. Glaeser, Edward L., 2006. "Paternalism and Psychology," Working Paper Series rwp06-006, Harvard University, John F. Kennedy School of Government.
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    Citations

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    Cited by:

    1. Jonathan Zinman & Eric Zitzewitz, 2016. "Wintertime for Deceptive Advertising?," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 177-192, January.
    2. Matsumura, Toshihiro & Sunada, Takeaki, 2013. "Advertising competition in a mixed oligopoly," Economics Letters, Elsevier, vol. 119(2), pages 183-185.
    3. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
    4. Edward L. Glaeser, 2013. "The Supply of Environmentalism," NBER Working Papers 19359, National Bureau of Economic Research, Inc.
    5. Rhodes, Andrew & Wilson, Chris M, 2015. "False Advertising," MPRA Paper 68869, University Library of Munich, Germany.
    6. repec:oup:revfin:v:21:y:2017:i:3:p:1189-1216. is not listed on IDEAS
    7. Szabó, Andrea & Ujhelyi, Gergely, 2015. "Reducing nonpayment for public utilities: Experimental evidence from South Africa," Journal of Development Economics, Elsevier, vol. 117(C), pages 20-31.
    8. Edward L. Glaeser & Yueran Ma, 2014. "The Supply of Gender Stereotypes and Discriminatory Beliefs," NBER Chapters,in: Human Capital in History: The American Record, pages 355-389 National Bureau of Economic Research, Inc.
    9. Keisuke Hattori & Keisaku Higashida, 2015. "Who Benefits from Misleading Advertising?," Economica, London School of Economics and Political Science, vol. 82(328), pages 613-643, October.
    10. Soham Baksi & Pinaki Bose & Di Xiang, 2012. "Credence Goods, Consumer Misinformation, and Quality," Departmental Working Papers 2012-01, The University of Winnipeg, Department of Economics.
    11. Keisuke Hattori & Keisaku Higashida, 2015. "Should non-genuine products be expelled from markets?," Discussion Paper Series 126, School of Economics, Kwansei Gakuin University, revised Mar 2015.
    12. Baumann, Florian & Rasch, Alexander, 2017. "Injunctions against false advertising," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168142, Verein für Socialpolitik / German Economic Association.
    13. Eftichios Sartzetakis & Anastasios Xepapadeas & Emmanuel Petrakis, 2012. "The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(3), pages 347-368, July.
    14. repec:kap:enreec:v:68:y:2017:i:2:d:10.1007_s10640-016-0024-4 is not listed on IDEAS
    15. Isztin, Péter, 2016. "Cass R. Sunstein: Choosing Not to Choose. Understanding the Value of Choice
      [Cass Sunstein: Choosing not to Choose. Understanding the Value of Choice]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 889-894.
    16. Keisuke Hattori & Keisaku Higashida, 2011. "When Government Misleads US: Sending Misinformation as Protectionist Devices," Discussion Paper Series 75, School of Economics, Kwansei Gakuin University, revised Aug 2011.
    17. Michael Kosfeld & Ulrich Schüwer, 2017. "Add-on Pricing in Retail Financial Markets and the Fallacies of Consumer Education," Review of Finance, European Finance Association, vol. 21(3), pages 1189-1216.
    18. Michael A. Wiles & Shailendra P. Jain & Saurabh Mishra & Charles Lindsey, 2010. "Stock Market Response to Regulatory Reports of Deceptive Advertising: The Moderating Effect of Omission Bias and Firm Reputation," Marketing Science, INFORMS, vol. 29(5), pages 828-845, 09-10.
    19. repec:kap:revind:v:51:y:2017:i:1:d:10.1007_s11151-016-9541-0 is not listed on IDEAS
    20. Kosfeld, Michael & Schüwer, Ulrich, 2011. "Add-on Pricing, Naive Consumers, and the Hidden Welfare Costs of Education," CEPR Discussion Papers 8636, C.E.P.R. Discussion Papers.
    21. Gsottbauer, Elisabeth & van den Bergh, Jeroen C.J.M., 2014. "Environmental policy when pollutive consumption is sensitive to advertising: Norms versus status," Ecological Economics, Elsevier, vol. 107(C), pages 39-50.

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