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1 PERSPECTIVES FROM SOCIAL ECONOMICS Series Editor: Mark D. White professor in the Department of Political Science, Economics, and Philosophy at the College of Staten Island/CUNY The Perspectives from Social Economics series incorporates an explicit ethical component into contemporary economic discussion of important policy and social issues, drawing on the approaches used by social economists around the world. It also allows social economists to develop their own frameworks and paradigms by exploring the philosophy and methodology of social economics in relation to orthodox and other heterodox approaches to economics. By furthering these goals, this series will expose a wider readership to the scholarship produced by social economists, and thereby promote the more inclusive viewpoints, especially as they concern ethical analyses of economic issues and methods. Published by Palgrave Macmillan Accepting the Invisible Hand: Market-Based Approaches to Social-Economic Problems Edited by Mark D. White Consequences of Economic Downturn: Beyond the Usual Economics Edited by Martha A. Starr Alternative Perspectives of a Good Society Edited by John Marangos Exchange Entitlement Mapping: Theory and Evidence By Aurélie Charles Approximating Prudence: Aristotelian Practical Wisdom and Economic Models of Choice By Andrew M. Yuengert Freedom of Contract and Paternalism: Prospects and Limits of an Economic Approach By Péter Cserne

2 PREVIOUS PUBLICATIONS BY PÉTER CSERNE National Legal Systems and Globalization: New Role, Continuing Relevance co-edited with Pierre Larouche (2012) Legal and Political Theory in the Post-National Age co-edited with Miklós Könczöl (2011) Theatrum Legale Mundi Symbola Cs. Varga oblata co-edited with István H. Szilágyi, Miklós Könczöl, Máté Paksy, Péter Takács, and Szilárd Tattay (2007)

3 Freedom of Contract and Paternalism Prospects and Limits of an Economic Approach Péter Cserne

4 FREEDOM OF CONTRACT AND PATERNALISM Copyright Péter Cserne, Softcover reprint of the hardcover 1st edition Artwork on cover: copyright 2012, Bálint Erdei: From Upper Sphere 2 All rights reserved. First published in 2012 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN ISBN (ebook) DOI / Library of Congress Cataloging-in-Publication Data Cserne, Péter. Freedom of contract and paternalism : prospects and limits of an economic approach / Péter Cserne. pages cm Includes bibliographical references and index. ISBN (alk. paper) 1. Paternalism. 2. Paternalism Social aspects. 3. Liberty of contract. I. Title. HM585.C dc A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai, India. First edition: December

5 Nagymaminak

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7 Contents Preface ix Chapter 1 Introduction: Motives and Methods 1 Chapter 2 Paternalism in Philosophy: Conceptions and Justifications 9 Chapter 3 Paternalism in Economics: Redefinitions and the Behavioral Turn 29 Chapter 4 Paternalism in Practice: Public Policy and Legal Design 51 Chapter 5 Paternalism in Contract Law: Rationalization and Critique 81 Chapter 6 Conclusion: Old and New in New Paternalism 137 Notes 141 Bibliography 165 Index 185

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9 Preface This book has grown out of a doctoral thesis that I defended at the University of Hamburg, Faculty of Law, in Between 2005, when I joined Graduiertenkolleg Recht und Ökonomik, the doctoral program of the Institute for Law and Economics at Hamburg University, and 2012, when I now conclude this revised and updated book version, I had innumerable occasions to learn from and exchange ideas with colleagues from various disciplines about paternalism, economic theory, legal philosophy, contract regulation, and much more. Measured in the number of new paternalistic regulations or new academic publications on the topic, much has happened in the four years since my PhD defense. These developments made me reconsider a number of arguments in my thesis but I do not discuss them systematically in this book. Nor do I explicitly refer to the economic and financial crisis and its impact on policy and scholarship. This would have required more radical rewriting than I was able and willing to undertake. It is for the readers to judge whether my arguments remained relevant and defensible. Although not all what I would now have to say on freedom of contract, paternalism, and related matters has found its way into this book, all what is included has been in some way inspired by my teachers, colleagues, and students or formulated through interactions with them. It would be impossible to list and acknowledge all my intellectual debts here, but I am happy and eager to thank particularly Professor Hans-Bernd Schäfer and Professor Peter Behrens, supervisor and second reader respectively of my thesis, for their support and thorough criticism of my work; Deutsche Forschungsgemeinschaft (German Research Foundation) for the scholarship that provided the financial background of my doctoral studies in Hamburg; professors and fellow graduates in and around the Graduiertenkolleg for the inspiring academic environment and the pleasant nonacademic joint activities;

10 x PREFACE Professor Avery W. Katz for acting as my sponsor professor during my visiting research fellowship at Columbia University School of Law in 2007; Professor Kent Greenawalt and fellow students in his spring 2007 Legal Interpretation seminar at Columbia Law School for memorable discussions; organizers and participants of conferences and workshops in Berlin, Budapest, Copenhagen, Haifa, Hamburg, Kassel, Krakow, Milan, Nancy, Rome, Saarbrücken, Siena, Turin, and Zurich where I could discuss previous versions of parts of this book; Mátyás Bódig, András Földi, Attila Harmathy, Manfred Holler, István H. Szilágyi, András Jakab, Máté Paksy, Ákos Szalai, and Péter Takács for reading and commenting on various sections; Professor Mark D. White, series editor of Perspectives from Social Economics at Palgrave Macmillan for including my book in the series; the editorial team at Palgrave Macmillan for their patience and professionalism in the process of turning my manuscript into a book; and Bálint Erdei for kindly offering his drawing for the cover design. Finally, I want to express my heartfelt gratitude to my family and friends whose support, care, and love contributed in many known and unknown ways to the creation of this book. For the imperfections of which I, of course, bear sole responsibility. Budapest, June 2012 Hull, August 2012 P. Cs.