Early Decisions: A Regulatory Framework

28 Pages Posted: 1 Jun 2006 Last revised: 29 Jul 2010

See all articles by John Beshears

John Beshears

Harvard Business School; National Bureau of Economic Research (NBER)

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian

Brigham Young University Marriott School of Business; National Bureau of Economic Research (NBER)

Date Written: January 2006

Abstract

We describe a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing - which is what Early Decisions enable - is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.

Suggested Citation

Beshears, John and Choi, James J. and Laibson, David I. and Madrian, Brigitte C., Early Decisions: A Regulatory Framework (January 2006). NBER Working Paper No. w11920. Available at SSRN: https://ssrn.com/abstract=875679

John Beshears

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
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National Bureau of Economic Research (NBER) ( email )

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James J. Choi (Contact Author)

Yale School of Management ( email )

135 Prospect Street
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National Bureau of Economic Research (NBER) ( email )

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David I. Laibson

Harvard University - Department of Economics ( email )

Littauer Center
Room M-14
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617-496-3402 (Phone)
617-495-8570 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brigitte C. Madrian

Brigham Young University Marriott School of Business ( email )

Provo, UT 84602
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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