Regulating Misinformation

Edward Ludwig Glaeser () and Gergely Ujhelyi

No 12784, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: A1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-mkt
Date: 2006-12
Note: PE IO
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