Regulating Misinformation

37 Pages Posted: 23 Dec 2006 Last revised: 22 May 2007

See all articles by Edward L. Glaeser

Edward L. Glaeser

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

Gergely Ujhelyi

University of Houston - Department of Economics; Institute for Corruption Studies

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

The government has responded to misleading advertising by banning it, engaging in counter-advertising and taxing the product. In this paper, we consider the social welfare effects of those different responses to misinformation. While misinformation lowers consumer surplus, its effect on social welfare is ambiguous. Misleading advertising leads to overconsumption but that may be offsetting the under-consumption associated with monopoly prices. If all advertising is misinformation then a tax or quantity restriction on advertising maximizes social welfare. Other policy interventions are inferior and cannot improve on a pure advertising tax. If it is impossible to tax misleading information without also taxing utility increasing advertising, then combining taxes or bans on advertising with other policies can increase welfare.

Suggested Citation

Glaeser, Edward L. and Ujhelyi, Gergely, Regulating Misinformation (December 2006). NBER Working Paper No. w12784. Available at SSRN: https://ssrn.com/abstract=953207

Edward L. Glaeser (Contact Author)

Harvard University - Department of Economics ( email )

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Brookings Institution

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Gergely Ujhelyi

University of Houston - Department of Economics ( email )

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