Post by Sapphire Capital on Dec 17, 2008 22:01:32 GMT 4
Consumer Harm Acts? An Economic Analysis of State Consumer Protection Acts
Henry N. Butler
Northwestern University - School of Law
Jason Scott Johnston
University of Pennsylvania - Law School
April 24, 2008
Northwestern Law & Econ Research Paper No. 08-02
U of Penn, Inst for Law & Econ Research Paper No. 08-29
U of Penn Law School, Public Law Research Paper No. 08-47
Abstract:
State Consumer Protection Acts (CPAs) were adopted in the 1960s and 1970s to protect consumers from unfair and deceptive practices that would not be redressed but for the existence of the acts. In this sense, CPAs were designed to fill existing gaps in market, legal and regulatory protections of consumers. From an economics perspective, CPAs were designed to solve two simple economic problems: 1) individual consumers often do not have the incentive or means to pursue individual claims against mass marketers who engage in unfair and deceptive practices; and, 2) because of the difficulty of establishing elements of either common law fraud or breach of promise, those actions alone are too weak an instrument to deter seller fraud and deception. The most striking lesson of our analysis is that the typical state CPA - with relaxed rules for establishing liability, statutory damages, damage multipliers, attorneys fees and costs, and class actions - solves the basic economic problem that CPAs were intended to address several times over. The effect of this redundancy in solutions is that CPAs can deter the provision of valuable information to consumers and, thus, harm consumers. That is, as currently applied state Consumer Protection Acts harm consumers. This need not be the case. A few modest reforms would dramatically improve the impact of CPAs on consumer welfare.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1307046_code711466.pdf?abstractid=1125305&mirid=1
Henry N. Butler
Northwestern University - School of Law
Jason Scott Johnston
University of Pennsylvania - Law School
April 24, 2008
Northwestern Law & Econ Research Paper No. 08-02
U of Penn, Inst for Law & Econ Research Paper No. 08-29
U of Penn Law School, Public Law Research Paper No. 08-47
Abstract:
State Consumer Protection Acts (CPAs) were adopted in the 1960s and 1970s to protect consumers from unfair and deceptive practices that would not be redressed but for the existence of the acts. In this sense, CPAs were designed to fill existing gaps in market, legal and regulatory protections of consumers. From an economics perspective, CPAs were designed to solve two simple economic problems: 1) individual consumers often do not have the incentive or means to pursue individual claims against mass marketers who engage in unfair and deceptive practices; and, 2) because of the difficulty of establishing elements of either common law fraud or breach of promise, those actions alone are too weak an instrument to deter seller fraud and deception. The most striking lesson of our analysis is that the typical state CPA - with relaxed rules for establishing liability, statutory damages, damage multipliers, attorneys fees and costs, and class actions - solves the basic economic problem that CPAs were intended to address several times over. The effect of this redundancy in solutions is that CPAs can deter the provision of valuable information to consumers and, thus, harm consumers. That is, as currently applied state Consumer Protection Acts harm consumers. This need not be the case. A few modest reforms would dramatically improve the impact of CPAs on consumer welfare.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1307046_code711466.pdf?abstractid=1125305&mirid=1