Tuesday, May 21, 2013
This is the seventh in a series of posts reviewing Margaret Jane Radin's Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law.
Oren Bar-Gill is a Professor of Law and Co-Director of the Center for Law, Economics and Organization, New York University School of Law
Professor Radin’s book is an eloquent and powerful critique of the fine-term, boilerplate contracts that pervade modern life. Its breadth – in terms of the range of theoretical perspectives that it considers and the different legal policy responses that it discusses – is impressive. In this comment, I focus on the economic analysis of boilerplate. I suggest that Radin’s treatment of this particular perspective, while clearly very useful, is, in some respects, incomplete.
In her discussion of the economic analysis of boilerplate, Radin focuses on, and criticizes, a Chicago-school approach that minimizes any concern about boilerplate. But this is only one strand in the economic analysis of form contracts. There is another, perhaps more influential strand that readily acknowledges the challenges that boilerplate presents for market efficiency and for welfare maximization.
Radin emphasizes the importance of consent. Economists don't care about consent as such; they care only about the functional role that consent plays in achieving Pareto efficiency. But this functional role is key for the economist. And economists recognize that, for most consumers, reading the fine print is simply irrational. Meaningful consent that comes out of such reading is, therefore, a myth.
But perhaps there could be meaningful consent without reading. Perhaps consumers can learn about the important features of boilerplate through other means. This is where economists have been focusing their recent efforts. Reputation, as bolstered by ratings and reviews (that are becoming increasingly important with the expansion of the Internet and the rise of social networks), plays a key role here. We see more and more examples where sellers compete over fine-print terms – where the terms rise from the fine print to the billboards. Consider automobile warranties or, more recently, early-termination fees in cellphone contracts and late fees and currency conversion fees in credit card contracts.
Consent, even meaningful consent, without reading is possible. We cannot always count on it, however. The challenge is to identify those cases where consent, including consent without reading, is absent. That is where we should focus our regulatory efforts.
Along these lines, I note two aspects of consumer contracts that deserve, perhaps, more attention than Radin gives them. First is the increasingly prevalent problem of unilateral modification, by sellers, of consumer contracts (with or without a specific unilateral modification clause in the initial contract). When a pro-consumer contract or term can so easily be changed, the forces that can generate consent-without-reading are substantially weakened.
Second, Radin focuses, in large part, on legal terms. But non-legal terms, specifically prices and fees can be similarly hidden and misunderstood by consumers. Such terms can be as harmful to consumers as the right-divesting terms that attract most of Radin’s critical attention.
Radin’s book is a great achievement. Among its many contributions is a critical account of the economic analysis of boilerplate. While I agree with much of this criticism, I have tried, in this brief comment, to sketch a richer picture of the economic approach to consumer contracts. I suspect that Radin would be quite sympathetic to this more nuanced approach.[Posted, on Oren Bar-Gill's behalf, by JT]