Michael Simkovic (University of Southern California Gould School of Law; University of Southern California - Marshall School of Business) & Meirav Furth (UCLA School of Law) has posted Pigouvian Contracts on SSRN. Here is the abstract:
Pigouvian taxes are often used to limit environmental externalities such as pollution. We argue that consumer contracts generate externalities by overwhelming consumers’ attention. Depleting each consumer’s attention harms consumers collectively because lower comprehension levels enable sellers to adopt less efficient and more one-sided terms. We propose to tax sellers in proportion to the costs that comprehending their contracts would impose on consumers. This would force sellers to internalize these costs and incentivize them to invest in contract simplification and forego strategic obfuscation. As a result, the costs to consumers of comprehending would decrease, and comprehension rates would rise. To further penalize inefficient contracts while reducing the tax burden on efficient contracts, we propose subsidizing consumer comprehension and information sharing efforts. Inefficient contracts would thereby be strongly disincentivized.
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Long time readers of Legal Theory Blog will know that I became obsessed with Pigouvian taxes in 1971 as a junior in high school. I will always be indebted to James Krier, now at the University of Michigan, but then a law professor at UCLA for the time he spent with me discussing this idea. A real thrill for a 16 year old.
