Proportional Contracts

58 Pages Posted: 26 Apr 2021 Last revised: 14 Jun 2021

See all articles by Michael Simkovic

Michael Simkovic

University of Southern California Gould School of Law; University of Southern California - Marshall School of Business

Meirav Furth

UCLA School of Law; Tel-Aviv University School of Law

Date Written: February 1, 2021

Abstract

Contract law treats consumer attention as if it were unlimited. We instead view consumer attention as a scarce resource that must be conserved. We argue that consumer contracts generate negative externalities by overwhelming consumers with information that depletes their attention and prevents competition on contract terms. We propose a novel solution to this market failure: To force sellers to internalize the attention externalities that their contracts generate. This will be accomplished through a Pigouvian tax on the presentation of a consumer contract, proportionate to the attention costs that reading and comprehending the contract would impose on consumers.

Keywords: Consumer contracts, contracts of adhesion, boilerplate, no-reading, readership, readability, attention, rational inattention, CFPB, default rule, gap-filler, pigouvian tax, form contract, duty to read, unconscionability, reasonable expectations, externality, standard form contracts

JEL Classification: D03, D11, D18, D43, D62, D82, D83, D86, H23, H25, H31, H32, K12, K34, L14, L15

Suggested Citation

Simkovic, Michael and Furth, Meirav, Proportional Contracts (February 1, 2021). Iowa Law Review, Vol. 107, No. 1, 2021, USC CLASS Research Paper Series No. CLASS21-24, USC Law Legal Studies Paper No. 21-24, Available at SSRN: https://ssrn.com/abstract=3833139

Michael Simkovic (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Meirav Furth

UCLA School of Law ( email )

Tel-Aviv University School of Law ( email )

Tel-Aviv
Israel
0524819151 (Phone)

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