Information Failure

• Measures to close the information gap:

  • Public education
  • Legislation to mandate information disclosure
  • Infrastructure to improve information flow
• Flaws in measures to close the information gap:

  • Cognitive bias
  • Voluntary nature
  • Monitoring and enforcement
• Benefits in measures to close the information gap:

  • Drives innovation
• When information failure leads to an over-consumption or under-consumption of a good, the government could impose taxes or subsidies respectively to correct the imbalance.
• When Qs < Qp, there is an over-consumption of a good and deadweight loss, a b c, is present. The government could implement an indirect tax to raise MPC0 to MPC1, which would readjust the private optimum output level to coincide with the socially optimum output level, Qs. Hence, deadweight loss would be diminished.

  
• Command and control measures to reduce information failure:

  • Restriction
  • Compulsory Consumption
  • Direct Provision