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Reforming State Consumer Protection Liability: An Economic Approach


Henry N. Butler


George Mason University School of Law

Jason Scott Johnston


University of Virginia - School of Law; PERC - Property and Environment Research Center

August 6, 2009

Columbia Business Law Review, Vol. 2010
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.

Number of Pages in PDF File: 84

Keywords: consumer protection, advertising, class actions, punitive damages, overdeterence, attorneys fees, fraud, misrepresentation, no harm, reliance, information

JEL Classification: D11, D80, D82, D83, K10, K12, K13, K20, K41, L14

working papers series





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Date posted: April 27, 2008 ; Last revised: November 22, 2009

Suggested Citation

Butler, Henry N. and Johnston, Jason Scott, Reforming State Consumer Protection Liability: An Economic Approach (August 6, 2009). Columbia Business Law Review, Vol. 2010; 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. Available at SSRN: http://ssrn.com/abstract=1125305 or http://dx.doi.org/10.2139/ssrn.1125305

Contact Information

Henry N. Butler (Contact Author)
George Mason University School of Law ( email )
3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8644 (Phone)
Jason Scott Johnston
University of Virginia - School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States
PERC - Property and Environment Research Center
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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