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 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 (producer welfare is increased by the same amount as the reduction in consumer welfare). The empirical illustration focuses on the U.S. state of South Carolina “buy local” food products campaign. The findings suggest that this government sponsored advertising campaign increases total welfare.

Issue Date:
May 30 2013
Publication Type:
Conference Paper/ Presentation
Record Identifier:
PURL Identifier:
Total Pages:
JEL Codes:
D11; D12
Series Statement:
Paper 2956

 Record created 2017-04-01, last modified 2018-01-22

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