Proportional Contracts

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