Does Government-sponsored Advertising Increase Social Welfare? A Theoretical and Empirical Investigation

The main objective of this study was to analyze the effect of advertising on social welfare in a perfectly competitive market where the level of advertising is chosen by a social planner. The theoretical model revealed that social planner-sponsored advertising that increases the equilibrium price of...

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Bibliographic Details
Published in:Applied economic perspectives and policy 2016-06, Vol.38 (2), p.239-259
Main Authors: Carpio, Carlos E., Isengildina-Massa, Olga
Format: Article
Language:English
Subjects:
complementary advertising
Contingent valuation
local foods
Submitted Article
taste‐shifting advertising
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Summary:The main objective of this study was to analyze the effect of advertising on social welfare in a perfectly competitive market where the level of advertising is chosen by a social planner. The theoretical model revealed that social planner-sponsored advertising that increases the equilibrium price of the advertised good can increase society's welfare if the effect of advertising in consumers' utility is higher than the consumer welfare-reducing price effect. The empirical illustration focuses on the U.S. state of South Carolina's "buy local" food products campaign. The findings suggest that this government-sponsored advertising campaign increases total welfare.
ISSN:2040-5790
2040-5804
DOI:10.1093/aepp/ppv012