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Does Government-sponsored Advertising Increase Social Welfare? A Theoretical and Empirical Investigation

Carlos Carpio () and Olga Isengildina-Massa

Applied Economic Perspectives and Policy, 2016, vol. 38, issue 2, 239-259

Abstract: The main objective of this study was to analyze the effect of advertising on social welfare in a perfectly competitive market where the level of advertising is chosen by a social planner. The theoretical model revealed that social planner-sponsored advertising that increases the equilibrium price of the advertised good can increase society's welfare if the effect of advertising in consumers' utility is higher than the consumer welfare-reducing price effect. The empirical illustration focuses on the U.S. state of South Carolina's "buy local" food products campaign. The findings suggest that this government-sponsored advertising campaign increases total welfare.

Date: 2016
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Working Paper: Does Government Sponsored Advertising Increase Social Welfare? A Theoretical and Empirical Investigation (2013) Downloads
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Applied Economic Perspectives and Policy is currently edited by Timothy Park, Tomislav Vukina and Ian Sheldon

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