Why Withdrawal Rights?

Abstract

Almost every legal system accepts the fundamental principle that promises must be kept (“pacta sunt servanda”). Yet, a consumer’s right to withdraw from a contract for the purchase goods or services (“withdrawal right”) figures prominently in European consumer law directives, in the ACQP and in the DCFR. Withdrawal rights imply a significant weakening of the fundamental principle pacta sunt servanda. However, the popular invocation of withdrawal rights is not rooted in a thorough analysis of the purposes such rights might fulfill. This article attempts to provide such an analysis by posing the central normative question: “Why Withdrawal Rights?”. It uses the tools of (behavioral) economics to identify three situational categories in which granting a withdrawal right may be justified: information asymmetries at the time of contract formation, exogenous distortions of the consumer’s preferences and endogenous distortions. The article also seeks to assess the effectiveness of withdrawal rights in achieving their stated objectives. It contains specific policy recommendations with respect to the mode in which withdrawal rights should be granted, if they are granted at all (i.e. mandatory versus optional, etc.).