Consumertarian Default Rules

By Strahilevitz, Lior Jacob; Luguri, Jamie | Law and Contemporary Problems, Fall 2019 | Go to article overview

Consumertarian Default Rules


Strahilevitz, Lior Jacob, Luguri, Jamie, Law and Contemporary Problems


I

INTRODUCTION

Default rules fill in missing terms in contracts. A great deal of contracts scholarship from recent decades tackles the question of how courts and other legal institutions should pick gap-filler terms. In this Article we advocate an approach that we call "consumertarian default rules." Rather than trying to identify the missing term that judges or legislators think both parties to a consumer contract would have agreed to in the absence of transaction costs, we propose focusing solely on the missing term that consumers in general expect.

Part II of this Article situates consumertarian default rules among well-known alternative approaches to filling in missing contractual terms, such as majoritarian default rules and penalty default rules. It explains that the consumertarian approach can, in some contexts, address major shortcomings associated with the more familiar alternatives. In the main, we suggest that it is easier for courts or other decision-makers to identify the contents of a consumertarian default rule, and that a consumertarian default rule is a penalty default rule whose contours are relatively easy to determine ex ante and that often provides an appropriately titrated penalty to promote information revelation. Part III points to a few instances where courts already use consumertarian default rules, albeit without providing a strong theoretical explanation for that approach. Part III also considers more fully the ex ante incentives created by consumertarian default rules.

Part IV reports on the results of an original study undertaken by the authors. In the study, we collect data from a census-weighted sample of American adults on consumer privacy expectations and preferences. Though consumer preferences and expectations reveal heterogeneity with respect to common uses of their data and precautions taken with their data by major technology firms like Google, Amazon, Facebook, and 23andMe, there are many domains in which a rather clear consensus exists. After analyzing these data, we argue that defining the content of consumertarian default rules is reasonably straightforward. The study thus functions as a proof of concept for the consumertarian approach.

Part V discusses important variations in the consumertarian default rule approach. We show how introducing friction can enable consumertarian defaults to resemble mandatory rules. We also examine the design choices to be made about whether consumertarian default rules are best tied to consumer expectations or preferences where the two differ, and how they might be used outside of the adversarial legal system. We conclude this Part by discussing the application of the consumertarian approach to questions involving contractual ambiguity, which may present distinct challenges from those associated with contractual silence. In short, we argue that in various important contexts, consumertarian default rules will be superior to alternatives such as majoritarian default rules, mandatory rules, or penalty default rules that impose undesirable terms on both parties.

II

DECIDING ON DEFAULT RULES

To make things concrete, let's begin our analysis with a simple example. Suppose Jane goes out of town and visits her destination airport's Budget Rental Car agency to rent a vehicle. Who can drive the car? The answer to this and any other contract question depends on some combination of the words of the rental agreement and any applicable default and mandatory rules provided by law. We know what Budget's rental terms say because the terms were relevant to the outcome of a recent United States Supreme Court case. (1) In this instance, the question of who can drive the rental car is explicitly addressed by the following language in Budget's rental agreement:

   I understand that the only ones permitted to drive the vehicle
   other than the renter are the renter's spouse, the renter's
   co-employee (with the renter's permission, while on company
   business), or a person who appears at the time of the rental and
   signs an Additional Driver Form. … 

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