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Imperfect Information About Consumer Rights: Implications for Efficiency and Distribution

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  • Florian Baumann
  • Tim Friehe
  • Tobias Wenzel

Abstract

This paper shows that the provision of consumer rights can induce unintended distributional effects and may, under specific circumstances, even decrease welfare when some consumers are unaware of these rights. We find that consumers who are uninformed about a mandated warranty may demand excessively safe products when the share of informed consumers is high. In other circumstances, uninformed consumers buy the efficient or an inefficiently unsafe products like informed consumers, but the former cross-subsidize the latter via firms’ pricing. Concerning the salient policy option of improving information about consumer rights, we find that increasing the share of informed consumers may raise the risk of inefficiency.

Suggested Citation

  • Florian Baumann & Tim Friehe & Tobias Wenzel, 2023. "Imperfect Information About Consumer Rights: Implications for Efficiency and Distribution," American Law and Economics Review, American Law and Economics Association, vol. 25(1), pages 86-128.
    • Handle: RePEc:oup:amlawe:v:25:y:2023:i:1:p:86-128.
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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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