Consumer Policy Tools

Background Paper to Creating Confident Consumers

May 2003

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Labelling and Warnings

Other consumer policy tools try to reduce information costs without restricting consumer choice to the same degree as prohibitions and bans. Warnings retain consumer choice but do not result in the information cost problems associated with more sophisticated disclosure devices. For instance, prominent labelling of a substance as a poison is a low-cost way of providing important information to consumers. Consumers can then choose to seek a substitute; or to investigate the details of the risk; or to make the purchase and use it with care, based on the precautions most reasonable people take with "poisons". [28]

Another way of providing information to consumers is through mandatory labelling or requirements to provide certain information with a transaction. [29] Labelling can be a simple way of conveying important information. However, the goal needs to be clear, otherwise consumers may receive information that does not help to align their expectations with the likely outcome of the transaction. [30]

[28] Ibid.., at 159.

[29] See, for instance, consumer information standards made under the Fair Trading Act 1986.

[30] Note that labelling can serve more than one purpose, which can shift over time. For instance, country of origin labelling is mandatory under the Fair Trading Act. Its original purpose was protectionist-to encourage consumers to "buy New Zealand-made". Over time this purpose has shifted, and it can now be seen as addressing consumer information problems: consumers can use country of origin labelling as an indicator of quality and to express through their purchasing ethical views about labour and environmental standards used in the production of goods.

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