Asymmetric Information in Consumer Contracts: The Challenge that is Yet to be Met

53 Pages Posted: 21 Sep 2007 Last revised: 1 Jul 2008

See all articles by Shmuel I. Becher

Shmuel I. Becher

Victoria University of Wellington

Abstract

The interdisciplinary contribution to the field of consumer standard form contracts is dominated by economics. Prominent law and economics scholars argue that economic analysis of consumer contracts leads to the conclusion that, by and large, there is no need to intervene in the market for contract terms as long as these contracts are offered in competitive markets. Yet, this Article seeks to demonstrate that the model which is employed to justify this anti-intervention approach is seriously flawed. Accordingly, relying on such a model can lead policy makers to reach unjust decisions.

In light of the inadequacy of market forces to reach equilibrium where efficient consumer form contracts are being drafted, it becomes clear that some intervention in the market for consumer contract terms is necessary. However, this inference should not imply that current main paths - regulation by legislatures and judicial control over the substance of consumer form contracts - provide cost-effective avenues. Unfortunately, as this Article illustrates, sometimes they are, but more often they are not.

Thus, this Article establishes that current approaches to consumer contracts do not provide a satisfactory solution to the problems that such contracts pose to traditional contract law. The immediate result of this failure is that sellers frequently incorporate inefficient and unjust contract terms in their form contracts. Consumers, therefore, are left without adequate protection.

Keywords: Consumer contracts, asymmetric information, law and economics, marginal consumers, consumer law

JEL Classification: K12, K20, L40

Suggested Citation

Becher, Shmuel I., Asymmetric Information in Consumer Contracts: The Challenge that is Yet to be Met. American Business Law Journal, Vol. 45, 2008, Available at SSRN: https://ssrn.com/abstract=1016010

Shmuel I. Becher (Contact Author)

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

HOME PAGE: http://www.victoria.ac.nz/sacl/about/staff/samuel-becher

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