NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Regulating Misinformation

Edward L. Glaeser, Gergely Ujhelyi

NBER Working Paper No. 12784
Issued in December 2006
NBER Program(s):   PE   IO

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.

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Document Object Identifier (DOI): 10.3386/w12784

Published: Glaeser, Edward L. and Gergely Ujhelyi. "Regulating Misinformation." Journal of Public Economics 94, 3-4 (April 2010): 247-257. citation courtesy of

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