While paternalism is about bias, it need not be about irrational bias. In a 2003 Journal of Public Economics paper, I modeled product bans and warnings directed at completely-rational consumers, and chosen by a better-informed completely-rational regulator who only cares about economic welfare. I found:
- Even ideal regulators want to lie about product quality, to correct for other market failures.
- Even a small temptation to lie makes consumers disbelieve most of what regulators say.
- Regulators who can ban sometimes do, as consumers won’t believe severe warnings.
- Consumers believe more severe warnings from regulators who can only warn.
- When regulators prefer to talk up quality (e.g., in health, school, investing), both regulators and consumers are better off if regulators cannot ban.
Yes, this model may be less relevant if irrational biases are central to paternalism. But it at least gives us a concrete reference point. Weather permitting, David Balan and I debate paternalism today.
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