Consumer Protection

1
Consumer Protection

• What we do to protect consumers.
• What we should do to protect consumers.

2
Consumer Protection

• How can the law protect consumers from the risks
  associated with dangerous or defective products?
• Do you conceive of the decision in social
  efficiency terms, as Baron does?

• ex ante regulation (plus enforcement)
• ex post liability rules

EXECUTIVE BRANCH
COURTS
3
Total Social Cost Cost of care Cost of
injuries Injuries prevented
Cost
Socially optimal of injuries prevented
4
Consumer Protection
What factors should influence governments choice
whether to regulate, or to impose liability for,
a hidden or serious risk? Coase Theorem Should
government work to prevent all serious
risks? Putting aside ex post liability rules,
what forms of ex ante regulation can government
use to minimize risks?
5
Consumer Protection

• Preventive regulation
• licensing
• standards

• FDA (drugs)
• EPA (pesticides)

• NHTSA (auto safety)
• CPSC (consumer products)

6
Consumer Protection

• Preventive regulation
• information

• Cigarette labels (surgeon general)
• Drug inserts (FDA)
• Chemical transport labels (DOT)
• Product labels (CPSC)

7
Consumer Protection

• Enforcement
• penalties (civil and criminal)
• product recalls
• product bans

8
Products Liability

• Theories of liability in product liability cases
• Negligence unreasonable conduct by the
  defendant.
• Strict Liability policy which holds the
  defendant liable regardless of his behavior.
• Warranty -- a contractual assurance that goods
  will meet certain standards.

9
Express Warranties A Contract Right

• An express warranty is one that the seller
  creates with his words or actions.
• Any affirmation of fact--or any promise--can
  create an express warranty.
• This drill will cut through pvc pipe
• This drill will cut through just about anything
• Any description of the goods can create an
  express warranty.
• Demonstration video in store
• Any sample or model can create an express
  warranty.

10
Implied Warranties

• Are created by the Code itself, not by any act or
  statement of the seller.
• Implied Warranty of Merchantability
• Implied Warranty of Fitness for a Particular
  Purpose

11
Disclaimers and Defenses

• Disclaimer a statement that a particular
  warranty does not apply.
• Oral Express Warranties may be disclaimed, even
  if contrary to salespersons statements.
• Written Express Warranties may NOT be
  disclaimed.
• Implied Warranties of Merchantability may
  disclaim, but must use word merchantability and
  the disclaimer must be conspicuous

12
Disclaimers Defenses (contd)

• General rule may disclaim all implied
  warranties by using the terms as-is or with
  all faults.
• Creates caveat emptor
• Some states prohibit disclaimer of implied
  warranties
• Written Express Warranties may NOT be
  disclaimed.
• Implied Warranties of Merchantability may
  disclaim, but must use word merchantability and
  the disclaimer must be conspicuous

13

• TORT REFORM
• What is it? Are you for it?
• Specifics

• Ethical Question Is it ethical to market
  products that you know pose health and safety
  risks to the public?
• Bridgestone/Firestone
• Ford Pinto
• Cigarettes
• Asbestos?