Do consumers benefit from mandatory labels? How much? These questions are difficult to answer, because assessment of the costs and benefits of labels presents serious challenges. In the United States, federal agencies have: (1) claimed that quantification is essentially impossible; (2) engaged in ‘breakeven analysis’; (3) projected various endpoints, such as health benefits or purely economic savings; and (4) relied on private willingness-to-pay for the relevant information.
All of these approaches run into serious normative, conceptual, and empirical objections. Approach (3) will exaggerate what consumers gain, because many people suffer welfare losses when they see labels, whether or not they end up making different choices. (Part of that loss is captured in one reaction to mandatory calorie labels: ‘They ruined popcorn!’) In principle, approach (4) is usually best, but people may lack the information that would permit them to say how much they would pay for (more) information, and sometimes tastes and values shift over time, which means that willingness to pay may fail to capture welfare effects. These points raise fundamental conceptual, normative, and empirical questions about welfarist approaches to public policy.
Sunstein, Cass R, ‘They Ruined Popcorn’: On the Costs and Benefits of Mandatory Labels (December 22, 2017). Forthcoming, Law and Marketing, Jacob Gersen and Joel Steckel, eds, Cambridge University Press.