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Worried about Adverse Product Effects? Information Disclosure and Consumer Awareness

Listed author(s):
  • 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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File URL: http://www.tse-fr.eu/sites/default/files/medias/doc/wp/bee/10-157.pdf
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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
Handle: RePEc:tse:wpaper:22665
Contact details of provider: Phone: (+33) 5 61 12 86 23
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  9. HEIFETZ, Aviad & MEIER, Martin & SCHIPPER, Burkhard C., 2004. "Interactive unawareness," CORE Discussion Papers 2004059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  18. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Products Liability, Signaling and Disclosure," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 106-126, March.
  19. Tirole, Jean, 2008. "Cognition and Incomplete Contracts," IDEI Working Papers 453, Institut d'Économie Industrielle (IDEI), Toulouse.
  20. Grossman, S J & Hart, O D, 1980. " Disclosure Laws and Takeover Bids," Journal of Finance, American Finance Association, vol. 35(2), pages 323-334, May.
  21. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 409-451.
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