When do "Nudges" Increase Welfare?

Hunt Allcott, Daniel Cohen, William Morrison and Dmitry Taubinsky

No 30740, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use public finance sufficient statistic approaches to characterize the welfare effects of “nudges,” such as simplified information and warning labels, in markets with taxes and endogenous prices. While many studies focus on average effects, we show that welfare also depends on how the nudge affects the variance of choice distortions, and average effects become irrelevant with zero pass-through or optimal taxes. We implement the framework with experiments evaluating automotive fuel economy labels and sugary drink health labels. Labels decrease purchases of low-fuel economy cars and sugary drinks but may decrease welfare, because they increase the variance of choice distortions.

JEL-codes: D90 H0 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-hea and nep-reg
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Citations: View citations in EconPapers (3)

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