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Regulating Misinformation

  • Edward L. Glaeser
  • Gergely Ujhelyi

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12784.

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Date of creation: Dec 2006
Date of revision:
Publication status: published as Glaeser, Edward L. and Gergely Ujhelyi. "Regulating Misinformation." Journal of Public Economics 94, 3-4 (April 2010): 247-257.
Handle: RePEc:nbr:nberwo:12784
Note: PE IO
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  1. Shapiro, Jesse & Glaeser, Edward & Cutler, David, 2003. "Why Have Americans Become More Obese," Scholarly Articles 2640583, Harvard University Department of Economics.
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