Consumer Policy Tools

Background Paper to Creating Confident Consumers

May 2003

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Introduction

The literature review on analytical frameworks discussed different frameworks for considering the premises for regulating consumer transactions and the goals of consumer law. It noted a number of frameworks that advanced various goals, including:

• addressing market failures or creating efficient markets for consumer goods and services
• advancing normative goals, such as distributive justice or other community-held values
• paternalistic protection of the consumer.

The literature review favoured an information-based framework, in which information is the organising concept for a principled approach to consumer policy. Under this framework, consumer policy focuses on the quality and cost of consumer information.

This paper discusses a number of consumer policy tools which can be used to address consumer policy issues, and identifies some of the considerations which need to be taken into account when choosing the tools to address particular issues. For the purposes of this discussion, and in the interests of retaining consistency with the preceding paper, many of the examples in this paper relate to consumer policy issues identified under an information-based framework. The tools are not peculiar to that framework, and could be used under any of the analytical frameworks discussed in the preceding paper, although the assumptions inherent in any given framework are likely to favour different combinations of policy tools.

This paper does not purport to identify all available policy tools, or all circumstances in which intervention might be considered. In any given case, the range of policy tools will vary according to factors such as the available regulatory and market institutions; the specific nature of the consumer policy issue; the nature and impact of consumer detriment; and the trade-offs available in the circumstances. The existence and impact of these variables means that the discussion in this paper must necessarily be somewhat abstract, and that extrapolation will be required to fit this discussion to particular consumer policy issues.

There are a number of ways in which the market can correct informational problems, by responding to the heuristic devices that consumers use when making decisions under uncertainty. The paper considers the barriers to these responses emerging in a competitive market, and the ways in which the government can help the market to overcome those barriers.

In the absence of a viable market-based solution, government may have to consider regulatory interventions. This paper outlines a number of trade-offs that policy-makers need to consider in designing and choosing policy tools. It goes on to discuss a number of regulatory policy tools that can be used to address informational problems in consumer transactions.

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