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Imperfect information about consumer rights: Implications for efficiency and distribution

Author

Listed:
  • Baumann, Florian
  • Friehe, Tim
  • Wenzel, Tobias

Abstract

This paper shows that the provision of consumer rights can decrease welfare when some consumers remain ignorant of these rights. We find that consumers uninformed about a mandated warranty demand excessively safe products in some circumstances. In other circumstances, uninformed consumers buy the efficient product variety like informed consumers but the former cross-subsidize the latter via firms' pricing. With respect to the salient policy option of improving information about consumer rights, we find that increasing the share of informed consumers may actually raise the risk of inefficiency.

Suggested Citation

  • Baumann, Florian & Friehe, Tim & Wenzel, Tobias, 2021. "Imperfect information about consumer rights: Implications for efficiency and distribution," ZEW Discussion Papers 21-098, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:21098
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    References listed on IDEAS

    as
    1. Author-Name: Alan S. Blinder & Alan B. Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 327-397.
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    More about this item

    Keywords

    consumer policy; imperfect information; efficiency; product safety; distribution;
    All these keywords.

    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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