Warning Labels as Cheap-Talk:
Why Regulators Ban Drugs
Robin Hanson
September 2001
Abstract
One explanation for drug bans is that regulators know more than consumers about product
quality. But why not just communicate the information in their ban, perhaps via a "would have
banned" label?Beca use product labeling is cheap-talk, any small market failure tempts regulators
to lie about quality, inducing consumers who suspect such lies to not believe everything
they are told. In fact, when regulators expect market failures to result in under-consumption
of a drug, and so would not ban it for informed consumers, regulators ex ante prefer to commit
to not banning this drug for uninformed consumers.
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