When Does Libertarian Paternalism Work?

Bruce Ian Carlin, Simon Gervais () and Gustavo Manso

No 15139, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a theoretical model to study the effects of libertarian paternalism on knowledge acquisition and social learning. Individuals in our model are permitted to appreciate and use the information content in the default options set by the government. We show that in some settings libertarian paternalism may decrease welfare because default options slow information aggregation in the market. We also analyze what happens when the government acquires imprecise information about individuals, and characterize its incentives to avoid full disclosure of its information to the market, even when it has perfect information. Finally, we consider a market in which individuals can sell their information to others and show that the presence of default options causes the quality of advice to decrease, which may lower social welfare.

JEL-codes: G18 G38 H11 (search for similar items in EconPapers)
Date: Written
Note: CF LE PE POL

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