Standard versus behavioral economics analysis of opt-in and opt-out policies

Citizen participation in some government programs, such as tax withholding from wage and salary income is required (“required in”). Other government programs can involve either opt-in or opt-out.  The State of Virginia, for example, recently adopted a requirement that preteen girls get the human papillomavirus (HPV) vaccine, but allowed parents to elect to opt-out of the requirement. Many states have required vaccinations for school attendance, but parents can opt out for religious reasons. Handicapped individuals typically must opt-in to obtain handicapped parking certificates.  In the U.S., states  have provisions allowing the individual to donate his or her organs in the case of (say) a fatal auto accident. Implied or actual consent is typically required.. In some European countries, in contrast, there is opt-out rather than opt-in.

Private firms also sometimes present such options.  Retirement savings plans for employees may be either opt-in or opt-out.  Customers of some firms can opt-in for automatic bill payment.   The paper contains many more examples

This paper has  three complementary aims: first, to point out the wide range of opt-in/opt-out provisions in existing policies and programs; second, to model the economic effects of these provisions; and third, to consider the extent to which the modeling of opt-in opt-out effects can be done using more traditional modeling approaches versus requiring the insights of behavioral economics.  Among the paper’s findings are the following. We show that, if there are positive transactions costs, opt-in and opt-out have systematically different effects on the level of provision associated with particular policies. Moreover, if externalities are present, these options can move the level of provision closer to (or further away from) the Pareto-optimal level. We identify a series of reasons or rationales why a government agency might adopt either opt-in or opt-out provisions. Specific attention is devoted to two examples: vaccination and CD renewals. In the latter case, we show how the use of opt-out can enable price discrimination. To the best of our knowledge, this paper is the first place this possibility is set forth and analyzed.