The Effects of Regulating Hidden Add‐On Costs

K. Jeremy Ko and Jared Williams

Journal of Money, Credit and Banking, 2017, vol. 49, issue 1, 39-74

Abstract: We examine the welfare effects of price and disclosure regulation in a model where firms can shroud add‐on costs, such as penalty fees for consumer financial products. Such regulation can increase or decrease welfare even when there are no direct costs. There are, however, strong complementarities between price controls and disclosure mandates: conditional on disclosure being mandated, price controls always (weakly) increase welfare, and conditional on prices being sufficiently constrained, disclosure mandates always (weakly) increase welfare.

Date: 2017
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https://doi.org/10.1111/jmcb.12368

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:49:y:2017:i:1:p:39-74

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