Carlin, Bruce, Simon Gervais, and Gustavo Manso, 2013, “Libertarian Paternalism, Information Production, and Financial Decision-Making,” Review of Financial Studies 26, 2204–2228.
We develop a theoretical model to analyze the effects of libertarian paternalism on information production and financial decision making. Individuals in our model appreciate the information content of the recommendations made by a social planner. This affects their incentive to gather information, and in turn the speed at which information spreads across market participants, via social learning or formal advice channels. We characterize situations in which libertarian paternalism improves welfare and contrast them with scenarios in which this policy is suboptimal because of its negative impact on the production and propagation of information.
| Paper | Slides |