June 25, 2007
Third Annual Conglomerate Junior Scholars Workshop: David Friedman's Reinventing Consumer Protection
Posted by Christine Hurt

Welcome to the first paper to be presented in the Conglomerate 2007 Junior Scholars Workshop.  Today's paper is Reinventing Consumer Protection by David Friedman.  David is currently a visiting assistant professor at Willamette and has as his teaching and research interests consumer law, contracts, commercial law and business associations.  Commentators for David's paper include Larry Garvin, Bob Lawless, Adam Levitin and Ronald Mann.  Throughout the morning, I will post the comments of these experts below this post.  We invite readers to comment on the paper (and the comments) in the comments section of this post.  In the interest of running this workshop like a physical world conference, no anonymous commenters, please.

Here is the abstract for Reinventing Consumer Protection:

Consumer fraud presents a continual puzzle for society. We have significant enforcement and education mechanisms, yet we continue to endure ever-evolving consumer fraud. I contend that the incidence of consumer fraud can be reduced through creative, efficient, non-traditional instruments of deterrence.

This article proposes a plan for re-approaching consumer protection through selection of a protected group and a concentrated reallocation of resources. Specifically, I argue that enhancing sanctions for a vulnerable, reluctant-to-report consumer group will shift fraud perpetrators toward targets that are better able to defend themselves. Additionally, fraud perpetrators will have to operate with extra caution in their schemes to ensure that they will not inadvertently ensnare a member of the protected class. This measure would accomplish further protection of the selected group and moderately increase deterrence throughout the rest of the economy.

However, I argue that this measure should be supplemented with another initiative. If we create a group consisting of randomly selected consumers and provide the members of that group with significant extra protection through higher sanctions and concentrated consumer education, fraud incidence will drop even more significantly. The concealed nature of the randomly protected consumer creates a general aura of deterrence. In this environment, fraud perpetrators never know whether a potential victim carries specially protected status- this elevates the risk of detection and the expected sanction for all consumers.

Group protection enables enforcement to achieve deterrence without having to provide incremental, expensive protection to the entire population. Understanding how the perpetrators and consumers make decisions about engaging in transactions is the key to unlocking efficient methods, like those described, for achieving the objective of efficiently reducing incidence of consumer fraud.

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