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The Timing of Choice-Enhancing Policies

34 Pages Posted: 4 Aug 2016  

Takeshi Murooka

University of California, Berkeley - Department of Economics

Marco A. Schwarz

Ludwig Maximilian University of Munich

Date Written: July 05, 2016

Abstract

Recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers. We analyse the optimal timing of such choice-enhancing policies when a firm can strategically react to them. In our model, a firm provides an automatic enrollment or renewal to consumers. We show that a conventional choice-enhancing policy, which decreases consumers’ switching costs when they are initially enrolled, can be detrimental to consumer and social welfare. By contrast, an alternative policy that decreases consumers’ switching costs when the firm charges a higher price for the service increases consumer and social welfare more robustly.

Keywords: active choice, procrastination, present bias, automatic enrollment, automatic renewal, consumer naivete

JEL Classification: D030, D180, D210, D400, L510

Suggested Citation

Murooka, Takeshi and Schwarz, Marco A., The Timing of Choice-Enhancing Policies (July 05, 2016). CESifo Working Paper Series No. 5983. Available at SSRN: https://ssrn.com/abstract=2818278

Takeshi Murooka (Contact Author)

University of California, Berkeley - Department of Economics ( email )

508-1 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Marco A. Schwarz

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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