Sovern Paper: Cost-Benefit Analysis and Consumer Protection

by Jeff Sovern

I've posted a paper on SSRN, Can Cost-Benefit Analysis Help Consumer Protection Laws? Or at Least Benefit Analysis?, forthcoming in the University of California-Irvine Law ReviewHere's the abstract:

Cost-benefit analysis is often troubling to consumer advocates. But this article argues that in some circumstances it may help consumers. The article gives several examples of supposed consumer protections that have protected consumers poorly, if at all. It also argues that before adopting consumer protections, lawmakers should first attempt to determine whether the protections will work. The article suggests that because lawmakers are unlikely to adopt multiple solutions to the same problem, one cost of ineffective consumer protections is a kind of opportunity cost, in that ineffective consumer protections might appear to make unnecessary adoption of effective ones. Ironically, such an opportunity cost is unlikely to be taken account of in cost-benefit analysis. Among the protections that especially risk failing to benefit consumers are laws that require consumers to perform certain tasks, such as disclosure laws that presuppose consumers will pay attention to and act on the disclosures; if consumers instead generally ignore the disclosures, the consumer protection will be largely illusory. Accordingly, before adopting measures that depend on consumers to do something, lawmakers should try to verify that consumers will in fact undertake those actions. The article also makes some suggestions for ascertaining whether consumer protections will work—i.e., benefit consumers–and concludes with a brief critique of the proposed Independent Agency Regulatory Analysis Act.

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