When Does Libertarian Paternalism Work?

27 Pages Posted: 21 Jul 2009 Last revised: 13 Aug 2009

See all articles by Bruce I. Carlin

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Simon Gervais

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Gustavo Manso

University of California, Berkeley - Haas School of Business

Date Written: July 2009

Abstract

We develop a theoretical model to study the effects of libertarian paternalism on knowledge acquisition and social learning. Individuals in our model are permitted to appreciate and use the information content in the default options set by the government. We show that in some settings libertarian paternalism may decrease welfare because default options slow information aggregation in the market. We also analyze what happens when the government acquires imprecise information about individuals, and characterize its incentives to avoid full disclosure of its information to the market, even when it has perfect information. Finally, we consider a market in which individuals can sell their information to others and show that the presence of default options causes the quality of advice to decrease, which may lower social welfare.

Suggested Citation

Carlin, Bruce I. and Gervais, Simon and Manso, Gustavo, When Does Libertarian Paternalism Work? (July 2009). NBER Working Paper No. w15139. Available at SSRN: https://ssrn.com/abstract=1434653

Bruce I. Carlin (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Simon Gervais

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7683 (Phone)
919-883-5078 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty_research/faculty_directory/gervais/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Gustavo Manso

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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