Working Paper: NBER ID: w15139
Authors: Bruce Ian Carlin; Simon Gervais; Gustavo Manso
Abstract: We develop a theoretical model to study the effects of libertarian paternalism on knowledge acquisition and social learning. Individuals in our model are permitted to appreciate and use the information content in the default options set by the government. We show that in some settings libertarian paternalism may decrease welfare because default options slow information aggregation in the market. We also analyze what happens when the government acquires imprecise information about individuals, and characterize its incentives to avoid full disclosure of its information to the market, even when it has perfect information. Finally, we consider a market in which individuals can sell their information to others and show that the presence of default options causes the quality of advice to decrease, which may lower social welfare.
Keywords: Libertarian Paternalism; Default Options; Social Learning; Welfare Economics
JEL Codes: G18; G38; H11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Default options set by the government (H51) | Individual welfare outcomes (I31) |
| Default options may lower social welfare (D69) | Impeding information aggregation (D89) |
| Default options can slow the process of social learning (C92) | Suboptimal decision-making among individuals (D91) |
| Default options can improve welfare (D69) | When individuals are homogeneous (C92) |
| Default options can improve welfare (D69) | When the information held by the planner is more valuable than that which individuals can gather themselves (D83) |
| Presence of default options may decrease the quality of advice in markets (D80) | Impacting overall social welfare negatively (D69) |