Cost-Benefit Analysis and Consumer Law: Taking the Prohibition of Unfair Business Terms as an Example

Abstract

Consumer law pervades nearly all parts of the law and is one of the most important parts of modern legislation in many countries. Even today this development continues. The legislation in many countries tries to improve and expand the consumer law, a fact which is impressively confirmed by New Zealand’s Consumer Law Reform Bill 2011. However, up to and including today there is a dispute as to whether consumer law is devil’s work or a panacea of the modern legislation. Proponents of a free market claim that the law should be subject to the dogma of efficiency and, therefore, every law must be examined through a cost-benefit analysis. Only in the case that the benefits outweigh the costs a consumer protection law is justified. This paper seeks to explore whether, and to what extent, a cost-benefit analysis should be used to the law. Part II of the paper will show the difficulties within defining the term cost-benefit analysis, due to its variety of meanings. Part III will then explore the broader context of the cost-benefit analysis as a part of the economic analysis of law. Part IV and V will examine the advantages and disadvantages of a cost-benefit analysis. Part VI will point out that a cost-benefit analysis is a useful tool in order to identify whether or not a law is useful. Part VII eventually will demonstrate that a cost-benefit analysis is also helpful when thinking about consumer law, but should not be used as the only valuation standard. Moreover, this part uses a debate regarding the prohibition of unfair contract terms in order to give a practical example for a cost-benefit analysis. This part will then show that the benefits of a regulation far outweigh the costs and therefore a comprehensive regulation should be introduced.