An Institutional Perspective on the Regulation of Products in the United States
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Description
In the United States, there is a vibrant debate over whether consumer products, including medical devices and pharmaceuticals, are best regulated through regulations issued by the federal government or through private lawsuits commenced by plaintiffs who have been harmed by those products or, perhaps, through some combination of both. This debate implicates two theoretical issues: first, what is the ideal balance between the level of public government regulation and the availability of common law remedies in the form of private parties’ tort lawsuits? And, second, what is the level—state or federal—at which regulation or litigation should be organised? Steven Shavell has explored the first issue in depth. He has identified four factors to help determine the optimal mix of liability (i.e. regulation through private lawsuits resulting in judgments) and regulation (i.e. public governmental legislation): (i) the different amounts of information available to private parties, on the one hand, and regulators on the other; (ii) the ability of defendants (i.e. manufacturers) to pay for the harms they cause; (iii) the likelihood that the defendant-manufacturer will actually be sued; and (iv) the relative costs of administering a liability-based system as opposed to one grounded in direct regulation. Shavell concludes that two factors, differential knowledge and administrative costs, favour a liability-based regime, whereas the other two factors, a defendant’s potential inability to pay and its ability to escape litigation altogether, favour regulation. But Professor Shavell’s analysis has limitations. His analysis does not address an important dimension of the problem of regulation: the theoretical question of whether regulation is best performed at the federal level or at the state/local level, and the related institutional choice question that might further constrain optimal regulatory apparatus. In the United States, these questions boil down to whether and when the uniform centralized system that a federal-level system of regulation administered by agencies offers is preferable to the localized state regime of tort litigation commenced by individual injured consumers. As a theoretical matter, uniform national rules may be most desirable in those circumstances charaterised by significant interstate externalities, coordination problems, or economies of scale and scope. In such cases, state law claims might appropriately be deemed pre-empted by the relevant federal regulation. Conversely, state or local regulation—and, in turn, a finding against pre-emption—might be preferred on grounds of democratic accountability based upon regional differences in policy preferences, the benefits of experimentation, or the comparative advantage of inter-state competition yielding optimal policy outcomes. Economists and legal scholars have not shied away from this debate, but their debates are both partial and indeterminate. To quote Thomas Merrill, “[o]ne person’s healthy regional diversity is another’s interstate externality”. It may well be that, at least in the products liability context, there is not general, “one size fits all” theoretical solution leading to optimal regulation. To date, no commentator has devoted sufficient attention to what I believe to be the single most important dimension of the state/federal regulation conundrum in the United States: the question of the comparative institutional capabilities of agencies (the federal regulators) and courts (the state-level regulators, presiding over tort suits). This chapter, a synthesis of my previous work in this specific area, argues that the path to the optimal regulatory solution lies in cooperation between agencies and courts. More specifically, I argue that no judicial determination of either the merits of a products liability case or the threshold question whether a plaintiff’s state law claims are pre-empted can be complete without reference to the relevant agency’s view on issue before the court.
Source Publication
New Frontiers of Consumer Protection: The Interplay Between Private and Public Enforcement
Source Editors/Authors
Fabrizio Cafaggi, Hans-W. Micklitz
Publication Date
2009
Recommended Citation
Sharkey, Catherine M., "An Institutional Perspective on the Regulation of Products in the United States" (2009). Faculty Chapters. 1766.
https://gretchen.law.nyu.edu/fac-chapt/1766
