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Drawing False Inferences from Mandated Disclosures

28 Pages Posted: 10 Feb 2017 Last revised: 19 May 2017

Oren Bar-Gill

Harvard Law School

David Schkade

University of California, San Diego

Cass R. Sunstein

Harvard Law School; Harvard University - Harvard Kennedy School (HKS)

Date Written: February 9, 2017

Abstract

Disclosure mandates are pervasive. Though designed to inform consumers, such mandates may lead consumers to draw false inferences – for example, that a product is harmful when it is not. When deciding to require disclosure of an ingredient in or characteristic of a product, regulators may be motivated by evidence that the ingredient or characteristic is harmful to consumers. But they may also be motivated by a belief that consumers have a right to know what they are buying or by interest-group pressure. Consumers who misperceive the regulator’s true motive, or mix of motives, will draw false inferences from the mandated disclosure. If consumers think that the disclosure is motivated by evidence of harm, when in fact it is motivated by a belief in a right-to-know or by interest-group pressure, then they will be inefficiently deterred from purchasing the product. We analyze this general concern about disclosure mandates. We also offer survey evidence demonstrating that the risk of false inferences is serious and real. Our framework has implications for the ongoing debate over the labeling of food with genetically modified organisms (GMOs); it suggests that the relevant labels might prove misleading to some or many consumers, producing a potentially serious welfare loss. Under prevailing executive orders, regulators must consider that loss and if feasible, quantify it.

Suggested Citation

Bar-Gill, Oren and Schkade, David and Sunstein, Cass R., Drawing False Inferences from Mandated Disclosures (February 9, 2017). Harvard Public Law Working Paper No. 17-06. Available at SSRN: https://ssrn.com/abstract=2914354 or http://dx.doi.org/10.2139/ssrn.2914354

Oren Bar-Gill

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

David Schkade

University of California, San Diego ( email )

Rady School of Management
9500 Gilman Drive
La Jolla, CA 92093
United States
858-822-5933 (Phone)

HOME PAGE: http://management.ucsd.edu/cms/showcontent.aspx?ContentID=89

Cass R. Sunstein (Contact Author)

Harvard Law School ( email )

1575 Massachusetts Ave
Areeda Hall 225
Cambridge, MA 02138
United States
617-496-2291 (Phone)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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