Vague Lies and Lax Standards of Proof: On the Law and Economics of Advice

31 Pages Posted: 9 Jan 2011 Last revised: 28 Jun 2018

See all articles by Mikhail Drugov

Mikhail Drugov

Centre for Economic Policy Research (CEPR); New Economic School (NES)

Marta Troya-Martinez

New Economic School (NES); Centre for Economic Policy Research (CEPR)

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Date Written: June 21, 2018

Abstract

This paper analyses a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.

Keywords: Advice, Persuasion, Legal Procedure, Consumer Protection

JEL Classification: D18, D8, K4, L1

Suggested Citation

Drugov, Mikhail and Troya-Martinez, Marta, Vague Lies and Lax Standards of Proof: On the Law and Economics of Advice (June 21, 2018). Available at SSRN: https://ssrn.com/abstract=1737128 or http://dx.doi.org/10.2139/ssrn.1737128

Mikhail Drugov (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Marta Troya-Martinez

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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