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http://hdl.handle.net/10419/21277
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| Title: | | Cognitive Ability and Paternalism  |
| Authors: | | Saint-Paul, Gilles |
| Issue Date: | | 2002 |
| Series/Report no.: | | IZA Discussion paper series 609 |
| Abstract: | | This paper analyses the welfare effects of price restrictions on private contracting in a world where agents have a limited cognitive ability. People compute the costs and benefits of entering a transaction with an error. The government knows the distribution of true costs and benefits as well as that of errors. By imposing constraints on transaction prices, the government eliminates some that are on average inefficient--because the price signals that one of the parties has typically grossly overestimated its benefit from participation. This policy may increase aggregate welfare even though some of the transactions being blocked are actually efficient. The paper also studies the extent to which the use of private consultants with sufficient intelligence by people with limited intelligence may dominate government regulation. |
| Subjects: | | cognitive ability minimum wages regulation price controls paternalism intelligence |
| JEL: | | K32 K31 J8 J42 J41 J38 I3 H21 D83 D82 D81 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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