One-Way Contracts: Consumer Protection without Law

Innovation and Economic Growth

Article Snapshot

Author(s)

Omri Ben-Shahar

Source

U of Chicago Law & Economics, Olin Working Paper No. 484, 2009

Summary

Argues that a one-way contract only enforceable against the consumer would actually further consumer protection.

Policy Relevance

Going to court for legal remedies has not proved to be an effective remedy for most consumers. Therefore, alternative methods of consumer protection should take precedent. The one-way contract is a beneficial thought idea that raises awareness of what are more effective remedies than current legal ones.

Main Points

  • One-way contracts remove any recovery for one party to the contract if the other party breaches while simultaneously maintaining the liability of the other party. Here, the contract would be employed where there is one sophisticated party with power and one unsophisticated party without power.
     
  • This notion is just a thought idea that is meant to raise awareness and get consumer protection advocates talking about more effective ways to protect consumers. This is because in practice a one-way contract would violate the contract law element of mutuality.
     
  • A one-way contract regime would encourage consumers to favor installment payments and do away with paying up front. This would allow consumers to increase their ability to “self-help” when unsatisfied with a business.
     
  • Private bonds and assurances, which are basically warranties by third parties, would become more prevalent and provide an insurance function for consumers while also being another form of monitoring and deterrence against bad business practices.
     
  • The reputation of businesses if there is no legal recourse available would become paramount. An example of this can already be seen in the Internet context of Ebay transactions, where weaker legal remedies are available to consumers, and consequently the ratings and reputation of sellers is very important.
     
  • Businesses would have more of an incentive to go above and beyond what they offer, especially if they are dealing with consumers whom they like and know will continue to generate revenue for them. In these cases they will be more apt to try and please their profitable customers.
     
  • Even though it may be difficult or impossible to actually have one-way contracts, the types of alternative remedies available are better than going to court and they ought to be cultivated as more potent remedies for consumers.
     

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