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Does Government‐sponsored Advertising Increase Social Welfare? A Theoretical and Empirical Investigation
Author(s) -
Carpio Carlos E.,
IsengildinaMassa Olga
Publication year - 2016
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppv012
Subject(s) - social planner , planner , advertising , welfare , social welfare , government (linguistics) , economics , empirical research , microeconomics , public economics , business , political science , market economy , linguistics , philosophy , law , epistemology , computer science , programming language
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.