Jodi Beggs, aka Economists Do It With Models, argues that paternalism need not be justified by assuming irrational agents, but can simply be an efficient response to an informational problem:

Any Economics 101 course will tell you that a required condition for markets to be efficient (read, value-maximizing for society) is that consumers have full information about the products they are considering consuming. In this way, the calorie-labeling legislation is helping to push the fast food market in the direction of efficiency as much as anything else. What’s so behavioral-y about that?

One counter to this is that markets should be supplying the amount of information that consumers prefer, and that the reason we don’t observe a lot of menu labeling and other information from restaurants is because consumers don’t want to know. Of course, you could argue that they don’t want to know only because of what they don’t know…Wait, what?

Ok, bare with me. Pretend I had a sealed envelope that contained a letter from someone telling you telling you exactly why they hate you. But say you believe that everyone who you care about doesn’t hate you, therefore you assume it’s from someone you don’t care about, and since you don’t want the annoyance of reading hate mail from someone you don’t care about, you choose not to open the letter. But, say that letter is from your wife, who secretly hates you. Well you would want to know why your wife hates you, but since you believe your wife can’t possibly hate you, you won’t get information you want. Basically what I’m saying is that your current information set determines your demand for information.

So what does this have to do with menu labeling regulations? If we assume markets are working, then the level of information we observe is the amount demanded by consumers, which efficient. In this case menu labeling laws would make people worse off by giving them information they don’t want. That is unless the amount of information they are demanding is based on their assumption that restaurant food is kind of unhealthy, but not as unhealthy as it really is. If they had any idea how bad it was, they would want to know. In this case menu labeling laws could make people better off.

Determining the source of the lack of information is critical to knowing whether menu laws are efficient or not. This is especially important because the amount of information can affect demand, which contra Jodi, can change the choice set. She writes:

…the consumer has exactly the same set of choices available to her regardless of whether calorie counts are on the menus or not. Because of this feature, it’s hard to argue that this sort of legislation is significantly bad for anyone- here, the worst-case scenario is that some people keep eating unhealthy food but are no longer blissfully ignorant and instead feel guilty.

But what could happen is that when people are no longer able to be blissfully ignorant, which they prefer, they consume a healthier but lower utility set of products. This in turn could change restaurant supply decisions, which would mean a different choice set.

So what is it:  is our demand for ignorance efficient, or is our ignorance causing us to demand an inefficient amount of ignorance?

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