The Timing of Choice-Enhancing Policies

Murooka, Takeshi and Schwarz, Marco (2017): The Timing of Choice-Enhancing Policies. Collaborative Research Center Transregio 190, Discussion Paper No. 49

Abstract

Recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers. We analyze the optimal timing of such choice-enhancing policies when a firm can strategically react to them. In our model, a firm provides a contract with automatic renewal. We show that a policy intending to enhance consumers choices when they choose a contract can be detrimental to welfare. By contrast, a choice-enhancing policy at the time of contract renewal increases welfare more robustly. Our results highlight that policies should be targeted in timing to the actual choice inefficiency.

• Item Type: Paper
• Keywords: active choice; automatic renewal; automatic enrollment; procrastination; consumer naivete; present bias
• Faculties: Economics > Collaborative Research Center Transregio "Rationality and Competition"
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D03, D18, D21, D40, L51
• Language: English