Imperfect Information About Consumer Rights: Implications for Efficiency and Distribution

34 Pages Posted: 30 Dec 2021

See all articles by Florian Baumann

Florian Baumann

Johannes Gutenberg University Mainz - Department of Economic Theory

Tim Friehe

University of Marburg

Tobias Wenzel

University of Sheffield

Date Written: 2021

Abstract

This paper shows that the provision of consumer rights can decrease welfare when some consumers remain ignorant of these rights. We find that consumers uninformed about a mandated warranty demand excessively safe products in some circumstances. In other circumstances, uninformed consumers buy the efficient product variety like informed consumers but the former cross-subsidize the latter via firms’ pricing. With respect to the salient policy option of improving information about consumer rights, we find that increasing the share of informed consumers may actually raise the risk of inefficiency.

Keywords: consumer policy, imperfect information, efficiency, product safety, distribution

JEL Classification: D18, K12, K13

Suggested Citation

Baumann, Florian and Friehe, Tim and Wenzel, Tobias, Imperfect Information About Consumer Rights: Implications for Efficiency and Distribution (2021). ZEW - Centre for European Economic Research Discussion Paper No. 21-098, Available at SSRN: https://ssrn.com/abstract=3996194 or http://dx.doi.org/10.2139/ssrn.3996194

Florian Baumann (Contact Author)

Johannes Gutenberg University Mainz - Department of Economic Theory ( email )

D 55099 Mainz
Germany

Tim Friehe

University of Marburg ( email )

Universitätsstrasse 24
D-35032 Marburg, D-35032
Germany

Tobias Wenzel

University of Sheffield

17 Mappin Street
Sheffield, S1 4DT
United Kingdom

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