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Optimal Defaults in Consumer Markets

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  • Oren Bar-Gill
  • Omri Ben-Shahar

Abstract

The design of default provisions in consumer contracts involves an aspect that does not normally arise in other contexts. Unlike commercial parties, consumers have only limited information about the content of the default rule and how it fits with their preferences. Inefficient default rules may not lead to opt outs when they deal with technical aspects that consumers rarely experience and over which consumers' preferences are defined only crudely. This paper develops a model in which consumers are uninformed about their preferences but can acquire costly information and then choose a contract term that best matches their preferences. The paper explores the optimal design of default rules in such environments and how it differs from the existing conceptions of efficient default rule design.

Suggested Citation

  • Oren Bar-Gill & Omri Ben-Shahar, 2016. "Optimal Defaults in Consumer Markets," The Journal of Legal Studies, University of Chicago Press, vol. 45(S2), pages 137-161.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/688406
    DOI: 10.1086/688406
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    References listed on IDEAS

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    1. Bebchuk, Lucian Ayre & Shavell, Steven, 1991. "Information and the Scope of Liability for Breach of Contract: The Rule of Hadley vs. Baxendale," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(2), pages 284-312, Fall.
    2. Alessandro Acquisti & Leslie K. John & George Loewenstein, 2013. "What Is Privacy Worth?," The Journal of Legal Studies, University of Chicago Press, vol. 42(2), pages 249-274.
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    Cited by:

    1. Omri Ben-Shahar & Lior Jacob Strahilevitz, 2016. "Contracting over Privacy: Introduction," The Journal of Legal Studies, University of Chicago Press, vol. 45(S2), pages 1-11.

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