Imperfect Information About Consumer Rights: Implications for Efficiency and Distribution.

This article analyzes the welfare and distributional consequences of mandating consumer rights, specifically warranties for defective products, in markets where some consumers are unaware of these rights. It demonstrates that when only a share of consumers is informed about a mandated warranty, uninformed consumers may either cross-subsidize informed consumers or purchase excessively safe (and potentially inefficient) products, leading to unintended distributional effects and possible decreases in overall welfare. The study considers both competitive and monopolistic market structures, heterogeneous consumer risk perceptions, and continuous levels of product care, finding that increasing consumer awareness can sometimes reduce efficiency by inducing market segmentation. The findings highlight that imperfect consumer knowledge about rights complicates the social desirability of consumer protection policies and that informing consumers is a critical but potentially double-edged policy tool.