Early Decisions: A Regulatory Framework

John Beshears, James Choi, David Laibson and Brigitte Madrian

No 11920, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We describe a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing - which is what Early Decisions enable - is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.

JEL-codes: D11 D69 D91 H21 H31 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-pbe and nep-reg
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Citations: View citations in EconPapers (3)

Published as Beshears, John, James Choi, David Laibson, and Brigitte C. Madrian. “Early Decisions: A Regulatory Framework." Swedish Economic Policy Review 12,2 (2005): 41-60.

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