Andrew Wyckoff, Director, OECD's Directorate for Science, Technology and Industry
on the occasion of the 'Consumer Policy Toolkit' Roundtable
21 July 2010
US Federal Trade Commission
Thank you Ambassador Kornbluh, and my thanks to Chairman Leibowtiz and the Federal Trade Commission for hosting this Roundtable. We welcome the strong support that the US is giving to our work in the consumer policy area.
The Toolkit is an important document for policy makers, regulators, economists and consumer organisations alike. It presents a robust framework for understanding how consumer markets are changing and the implications that these changes have for policy making. It shows, for the first time, how what we have learned through the study of information and behavioural economics can be used to refine our traditional [neoclassical] approaches to policy making. This is an important development that will help boost the effectiveness of policy interventions.
Finally, the toolkit presents and elaborates a six-step process for sound policy making, describing the issues that should be considered prior to implementing policy measures. It describes the twelve basic tools that are available to policy makers and the conditions under which each tool can be effective.
What I would like to do in the next several minutes is to highlight some of the key points in the Toolkit, and then provide an opportunity for us to discuss any comments you may have.
I. How have consumers and markets changed over the past twenty years?
The Toolkit examines how consumers and markets have changed over the past twenty years. The bottom line – there is far more choice and far more complexity in consumer markets. This has generally benefitted consumers, but has raised challenges.
The Toolkit delves into these and a number of other important changes in consumer behaviour and markets. In light of the changes, policy makers are seeing a need to place greater emphasis on policies and programmes that “empower” consumers, by promoting market transparency and by providing information and guidance on ways to make better decisions, avoid problems and obtain redress when disputes arise. At the same time, policy makers need to be prepared to address ongoing and new forms of fraud, in particular in the online environment.
II. How has our thinking about consumer economics evolved?
One of the most interesting parts of the Toolkit is the chapter on the economics of consumer policy [Chapter II]. As you know, the conventional approach to consumer economics assumes that consumers will act rationally and that they are well informed. In today’s markets, we observe these conditions do not always prevail.
Behavioural economics is showing us that consumers do not always act rationally and that there appear to be certain behavioural biases that are rather common.
The Toolkit examines these areas in detail, providing insights into the implications for policy formulation. This is clearly an area where the Toolkit is having, and will have, a major impact on our thinking.
III. How can the Toolkit be used by policy makers?
The Toolkit does far more than describing how markets and economic thinking have evolved. It provides a practical guide for improving policy making.
One chapter [Chapter III] delves into the techniques that can be used to detect markets where consumers are experiencing what we refer to as consumer detriment, or harm. It describes the different forms that detriment can take, the signs of such detriment, and the variable affects it can have on vulnerable and disadvantages consumers. Numerous examples are provided on how information on consumer complaints can be used to identify problem markets, and how different types of surveys and fieldwork (mystery shopping and focus groups) can be used for this as well. Examples of what some countries (such as the UK, Norway and Denmark) have done to develop composite indicators that can be used to assess markets are also explored.
Another chapter [Chapter IV] presents the 12 key policy tools that are available to consumer authorities. The chapter outlines how these tools can be used effectively and identifies their potential impacts. Numerous examples of how the tools were actually used, and their effects, are provided.
For information, here are the tools:
The final chapter [Chapter V] draws all the elements together, providing a detailed, six-step process that policy makers can use to i) determine whether or not they should intervene in a market to address a problem and, if a policy intervention is warranted, ii) the steps that they should take what policy instrument, or instruments, should be used. The steps provide guidance on:
In conclusion, I would note that the Toolkit is actually already being used by the Committee in work that is being carried out on e-commerce and green claims. Next year, we will be organising workshops in which it will be used to tackle some of the most difficult problems facing consumers and consumer agencies.
Thank you for your attention and interest.