Free ad(vice): internet influencers and disclosure regulation

Matthew Mitchell

RAND Journal of Economics, 2021, vol. 52, issue 1, 3-21

Abstract: Consumers rely on intermediaries (“influencers”) such as social media recommendations to provide information about products. The advice may be mixed with endorsement in a way that is unobservable to the follower, creating a trade‐off for influencers between the best advice and the most revenue. This article models the dynamic relationship between an influencer and a follower. The relationship evolves between periods of less and more revenue. The model can provide insight into policies such as the Federal Trade Commission's mandatory disclosure rules. An opt‐in policy may be superior: it deregulates influencers who are reaping the rewards of past good advice.

Date: 2021
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https://doi.org/10.1111/1756-2171.12359

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