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Worried about Adverse Product Effects? Information Disclosure and Consumer Awareness

  • Li, Sanxi
  • Peitz, Martin
  • Zhao, Xiaojian

Whether consumers are aware of potentially adverse product effects, is key for private and social incentives to disclose information. To obtain a better understanding of this issue we propose a simple monopoly model that highlights the conceptual difference between consumer unawareness and consumer uncertainty. We show that total surplus may be larger in an environment in which consumers are unaware of the potentially adverse effect. We also show that disclosing information whether a particular ingredient is harmful or not increases consumer surplus, but mandatory disclosure of the level of this ingredient may make consumers worse off.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 10-157.

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Date of creation: 12 May 2010
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Handle: RePEc:tse:wpaper:22665
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  8. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
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  18. Oliver Board, 2006. "Object-Based Unawareness," Working Papers 245, University of Pittsburgh, Department of Economics, revised Jan 2006.
  19. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
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