The Unintended Consequence of Doorstep Consumer Protection: Surprise, Reciprocation, and Consistency
Ghent University Law School; Humboldt University Berlin
May 14, 2012
European Journal of Law and Economics, Forthcoming
Cooling-off periods are universally employed in doorstep selling regimes. Paired with a right for consumers to withdraw from the contract, this legal instrument seeks to protect consumers against superior skilled and knowledgeable sellers thus restoring the balance of interests. According to prior literature, cooling-off periods also serve an economic function by moderating the abuse of market power, by mitigating problems of hidden characteristics, and by promoting consumer choice. If their drawbacks -- mainly the creation of consumer moral hazard and shifting of risk to the seller -- can be contained, cooling-off periods are hence supposed to yield efficiency gains. By thinking out of this box, the present paper showcases that cooling-off periods also establish the perverse incentive for the seller to increase consumer compliance to a level which outlasts the cooling-off period. I argue that inevitably occurring psychological factors and transaction costs from the cooling-off regime amplify each other, thus creating a hard-lock status-quo bias. Based on behavioural insights and transaction cost theory, I predict that an inefficiently high number of consumers will enter into a doorstep contract and that, at the same time, the number of cancelled contracts will be inefficiently low. Consequently, I propose to change the default inherent in current cooling-off regimes from presumed consent to presumed withdrawal in order to debias consumers' withdrawal decision.
Number of Pages in PDF File: 31
Keywords: behavioural law and economics, unintended consequence, consumer protection, off-premises contracts, cooling-off period
JEL Classification: K12, D03, D18Accepted Paper Series
Date posted: May 15, 2012
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