Keywords

early decision regulations, self control, commitment devices

Abstract

We describe a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing— which is what Early Decisions enable—is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.

Original Publication Citation

“Early Decisions: A Regulatory Framework.” 2005. Swedish Economic Policy Review, 12(2): 41-60 (withJohn Beshears, James Choi and David Laibson). http://www.sweden.gov.se/content/1/c6/09/54/25/018aab39.pdf

Document Type

Peer-Reviewed Article

Publication Date

2005

Publisher

Swedish Economic Policy Review

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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