Abstract
Disclosure programs are quality assurance instruments when consumers are imperfectly informed about product quality. This study examines the On-Time Disclosure Rule for airline on-time performance which ranks airlines based on how well their flights arrive/depart on time. The program creates incentives for airlines to pad their flight schedules and artificially improve their reported on-time performance. Using a discrete choice demand model for air travel, we investigate how schedule padding affects consumer preferences. We find that schedule padding is associated with negative consumer welfare effects, reinforcing the notion of an unanticipated gaming behavior by firms that ends up harming consumer welfare.
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