The document discusses government intervention in information provision to reduce information asymmetries in transactions, highlighting information campaigns, regulations, and nudges as methods used. It outlines the pros, such as reducing information gaps and being adaptable to new information, and the cons, including opportunity costs and potential mistrust from consumers. Additionally, it emphasizes the limitations of information provision, especially concerning addictive goods.

1. Information
Provision
Lower 6th Micro
Government Intervention

2. Intro to
Information
Provision
Information Provision
Mr O’Grady

3. Information Provision
Definition: When the government acts to reduce information asymmetries by
providing information to all parties in a transaction.
Types of information provision:
Information campaigns: Where the government publicises information regarding the true
costs/benefits of a good or service
This aims to ensure that the perceived benefits/costs are closer to the actual benefits/costs
Examples: Health warnings on cigarettes, hard-hitting anti-speeding advertising, campaigns to raise
awareness of the risks of drink-driving / drug abuse, performance league tables for schools
Regulation: Rules to prevent one party (usually firms) from misrepresenting the benefits and
costs of good or service to the other party (usually consumers)
Reduces information gaps for demerit goods
Examples: Consumer protection laws (e.g. right for refunds of faulty goods), Industry standards for selling
used products such as second hand cars
Nudges: Tweaks to choice architecture that alters people's behaviour in a predictable way
without forbidding any options or significantly changing their economic incentives
Technically not really providing information, but encourages consumers to consume closer to the social
optimal quantity all the same
Examples: changes to the default option (e.g. side salad over chips), Nasty colours/pictures on cigarettes

4. Pros and Cons
of Information
Provision
Information Provision
Mr O’Grady

5. Pros and Cons of Information Provision
Pros:
Reduces Information Gap: Ensures that perceived benefits are closer to the actusl benefits
MPB perceived = MPB actual (or the gap between them is at least reduced)
Dynamic: Information can be quickly provide by the government should research discover
new costs/benefits that consumer and/or producers weren’t aware of before
Cons:
Opportunity Cost: Information campaigns can be costly to provide, government spending
that could be spent elsewhere
Uncertainty: Effectiveness of information provision at changing decisions may be limited if
consumers are not fully rational
May not fully achieve socially optimal allocation
Particularly a problem for goods that are addictive/highly inelastic PED (e.g. smoking)
Mistrust: Not everyone believes the government is always right
Even if the government is correct (e.g. on the provision of coronavirus vaccines), if people don’t trust them,
they won’t change their behaviour (e.g. they still believe they are getting microchipped etc.)

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