Murooka, Takeshi (Osaka University)
Schwarz, Marco (University of Innsbruck)
Recent studies investigate policies motivating consumers to make an active choice as a way to protect unsophisticated consumers. We analyze the optimal timing of such choice-enhancing policies when a firm can strategically react to them. In our model, a firm provides a contract with automatic renewal. We show that a policy intending to enhance consumers choices when they choose a contract can be detrimental to welfare. By contrast, a choice-enhancing policy at the time of contract renewal increases welfare more robustly. Our results highlight that policies should be targeted in timing to the actual choice inefficiency.
active choice; automatic renewal; automatic enrollment; procrastination; consumer naivete; present bias
D03; D18; D21; D40; L51