The Institutional Dimension of Consumer Protection
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Description
One of the central functions of the state is protecting the integrity of contracts such that markets and private ordering may thrive. This is such a well understood theme in liberal political theory as to appear to need no further exposition. Unfortunately, the classic account envisioned a single seller and a single buyer who needed the state only to make sure that cross-temporal commitments between purchase and delivery would be honoured and that disputes could be resolved without recourse to private retaliation. As important as this account may be, it is necessarily incomplete. As the scale and scope of markets change, so too must the role of the state in providing assurances against multiple forms of market malfunction. In some markets, particularly those that are close-knit with a great deal of repeat play among the participants, reputation and other informal mechanisms may be sufficient to police against most improper conduct. There, the role of governmental supervision might well be limited to that of the final guarantor that commitments to pay and deliver are honoured. But in our increasingly global economy, with buyers and sellers interchangeable and unknown to each other, community mechanisms of enforcement are difficult and there is a corresponding push for greater governmental supervision. We start from a simple proposition that the integrity of markets requires more than simply enforcing reciprocal terms of exchange. As the breadth of commercial activity expands and as exchange takes on forms unadorned by actual human contact, protecting consumers against harm becomes an essential prerequisite to the healthy functioning of markets. Fraud, product failure, and personal injury threaten the free exchange of goods and services by constricting the networks of trust and exchange and sapping the vitality of markets. Consumer protection is an integral part of the role of the state in mature market societies; our basic approach is to define the risk to markets as a social harm that can be managed in many ways, by many institutions. Simply acknowledging the need to police markets and protect consumers is an important but limited first step. All reasonably developed societies do that in some fashion. What is of interest for us is how that is done and what forms of institutional arrangements follow from the array of choices that remain. In this chapter, we take up two topics: first, the typology of harm management itself. By dividing enforcement agents into “public” and “private,” and the moments of enforcement into ex ante and ex post, it is possible to develop a typology. For example, the prior governmental approval of products before they may enter the market is a classic form of public ex ante regulation. A tort suit by an injured consumer is a corresponding private ex post form. Recently, American law has been dominated by disputes over how national ex ante regulation interacts with state-by-state ex post liability: if the Food and Drug Administration approves a medical device, for example, may an individual state's tort law hold the manufacturer liable for defective designs? Our main focus, however, is not so much on identifying the forms that regulation might take, but on the institutional demands made by these different modes of regulation. It is here that the temporal dimension emerges as critical. The management of social harm can be either ex ante or ex post or, as with the public/private distinction, a mixture of both. Regulation can act prescriptively to limit the potential for injurious conduct or it can react retrospectively to provide compensation to those harmed and attempt to get private actors to condition their behaviour in anticipation of liability rules. Each of the regulatory options must have its own supporting institutions and its own societal infrastructure to make it work. The choice of how to regulate harm ought to be as sensitive to what the tool requires as it is to the shape of the harm itself. These choices are about institutional design and competence as much as alleviation of substantive harm. Our aim here is not to revisit the debates about ex ante versus ex post regulation. These are complicated issues and there are many factors that have to be weighed in the balance, as there are trade-offs between centralized public enforcement as opposed to decentralized private enforcement. In this chapter, however, we are concerned not simply with whether markets can be made more vibrant by lifting ex ante forms of regulation—a view that underlies most efforts at deregulation—but also whether the right processes for ex post accountability are in place. The American experience with ex post regulation turns critically on the role of private enforcement to supplement more limited state responsibility for compensation and deterrence. The ability to harness private enforcement depends not only on the substantive laws governing compensation, but also on the incentives to ferret out wrongdoing, provide efficient resolution of similarly situated claims and compel the proper level of internalization of norms of proper market conduct. Our claim is not that a particular form of regulation is superior across all settings. Rather, it is that each regulatory strategy must ensure that the proper institutional actors are in place for its effective implementation.
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
Issacharoff, Samuel and Samuel, Ian, "The Institutional Dimension of Consumer Protection" (2009). Faculty Chapters. 932.
https://gretchen.law.nyu.edu/fac-chapt/932
