Policy Responses To Fake News On Social Media Platforms: A Law And Economics Analysis

Abstract

Fake News is one of the major techno-policy challenges faced by modern societies. As popular discourse shifts to social media platforms, Fake News on the internet has increased drastically, generating significant costs for society. Consequently, there is a regulatory movement across the globe to mitigate fake news on these platforms. A law and economics analysis offers valuable insights towards devising an appropriate regulatory approach to tackling this issue. In economic terms, Fake News can be conceptualized as a negative externality, while Fact-Checking and Content Moderation Services may be defined as public goods. There exists a misplaced individual incentive to create fake news on social media platforms. A clear case of market failure and thus a need for state intervention can be made out. While direct state regulation of platforms is the preferred approach by regulators for mitigating fake news, this paper cautions against over-reliance on such a ‘negative state’ regime, due to censorship risks and enforcement costs. This paper recommends adoption of a multi-pronged strategy, including a statutory Pigouvian tax to internalize social costs of fake news on social media platforms within the market, by channelling resources towards promoting positive state measures to mitigate the broader effects of fake news on these platforms. This paper’s analysis is largely located in the Indian context, with references to other jurisdictions.