Saturday, January 27, 2024

Economics of Lawsuits

The Planet Money folks did an episode on the Telephone Consumer Protection Act (TCPA) to combat spam callers. It allows spamees to sue for $500 per unwanted call. This has made it worth while for some people to actually sue and some have received sizable settlements. Defendants claim that it over deters because some people have made suing under the TCPA a business. Toward the end of the show the hosts have a pretty good sum up that describes the incentives for both parties.

HOROWITZ-GHAZI: The TCPA has turned telemarketing enforcement into a kind of market. Like, instead of having a central government agency deciding this is how much law enforcement we're going to have, the amount of enforcement goes up or down depending on the incentives. How easy is it to hunt down a company making illegal calls? How much does it cost to bring them to justice? Can you find efficiencies of scale by bringing lawsuits on behalf of millions of people all at once?

GUO: And, of course, as with any enforcement regime, the lawbreakers are also weighing their costs and benefits. Telemarketing is a multibillion-dollar business. How much can a telemarketer make on each call? How much financial risk is worth taking on to sell some vacation packages over the phone?

Incentives matter.

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