TY  - JOUR
AU  - Glaeser,Edward L.
AU  - Ujhelyi,Gergely
TI  - Regulating Misinformation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12784
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12784
L1  - http://www.nber.org/papers/w12784.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu

Gergely Ujhelyi
University of Houston
Economics Department
Houston, TX  77204
E-Mail: gujhelyi@uh.edu
AB  - 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.
ER  -