The pervasive but not sole theoretical framework used by governments, especially in the United States, to determine if and how to regulate various activities is some form of cost-benefit analysis.270 This is particularly true with respect to environmental, economic, and financial activity, although it has critics even in those contexts.271 But even if a cost-benefit analysis
270 See, e.g., Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (Sept. 30, 1993) (United States federal government, requiring a cost-benefit analysis for any “significant” proposed regulation); Robert W. Hahn & Cass R. Sunstein, A New Executive Order for Improving Federal Regulation? Deeper and Wider Cost-Benefit Analysis, 150 U.PA.L.REV. 1489, 1489 (2002) (“[a]t least in a formal sense, cost-benefit balancing is now the official creed of the [United States] executive branch”); Michael A Livermore, Can Cost-Benefit Analysis of Environmental Policy Go Global?, 19 N.Y.U.ENV.L.J. 146, 146 (“[c]ost-benefit analysis of environmental policy is widespread within advanced industrial economies” and “use of cost-benefit analysis as an aid to environmental decisionmaking has expanded in recent years in countries throughout Latin America, Asia, and Africa”), 150-59 (providing details) (2011);
Elizabeth Goldberg, “Better Regulation”: European Union Style 24, 33 (M-RCBG Associate Working Paper Series No. 98, 2018) (cost/benefit analysis is generally but not always one element of the European Union’s impact assessment for proposed rules), https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/files/98_final2.pdf.pdf; The Pew Charitable Trusts & MacArthur Foundation, States’ Use of Cost-Benefit Analysis:
Improving Results for Taxpayers 2 (July 2013) (“states [in the United States] are increasingly using cost-benefit analysis”), https://www.pewtrusts.org/-/media/legacy/uploadedfiles/pcs_assets/2013/pewresultsfirst50statereportpdf.pdf.
271 See, e.g., Frank Ackerman & Lisa Heinzerling, Pricing the Priceless: Cost-Benefit Analysis of Environmental Protection, 150 U.PA.L.REV. 1553, 1553 (2002); John C. Coates
framework is accepted as appropriate, it requires significant data to yield meaningful results, including with respect to the upsides and downsides of the activity, their monetary value, and the effect of different regulatory approaches on those upsides and downsides.272 A threshold problem with applying this analysis to a new activity that has a limited track record, including one driven by new technology, is therefore the lack of such data.
Over-simplifying, there are two approaches to regulating in the face of such uncertainty that mark the end points of a continuum of responses. One approach is the precautionary approach, sometimes referred to as the precautionary principle or the “better safe than sorry” approach, which scholars and regulators developed in the environmental law area273 but that has implications for many other legal areas.274 It calls for action at an early stage in response to a perceived threat, including in situations where the exact nature and magnitude of the threat is uncertain and so rigorous cost-benefit analysis is not practical.275 (It also sometimes is invoked as an alternative to a cost-benefit approach, although arguably it is really a variation of this approach used in the face of uncertainty.276) Not surprisingly, this approach is controversial,277 even in the environmental area where it originated and
IV, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 YALE L.J. 882, 886-87 (2015).
272 See, e.g., Ackerman & Heinzerling, supra note 271, at 1557-60 (also including setting a discount rate for future costs and benefits); Matthew D. Adler & Eric A. Posner, Rethinking Cost-Benefit Analysis, 109 YALE L.J. 165, 177-87 (1999) (complexities of applying cost-benefit analysis).
273 See generally James Cameron & Juli Abouchar, The Precautionary Principle of Law and Policy for Protection of the Global Environment, 14 B.C.INT’L &COMP.L.REV. 1 (1991); Armin Rosencranz, Shubham Janghu & Pratheek Reddy, The Evolution and Influence of International Environmental Norms, 49 ENVTL.L.REP.NEWS &ANALYSIS 10125, 10130-31 (2019).
274 See, e.g., Ignacio N. Cofone, Antidiscriminatory Privacy, 72S.M.U.L.REV. 139, 166-72 (2019) (employment discrimination law); Jennifer Huddleston, Preserving Permissionless Innovation in Federal Data Privacy Policy, 22 J.INTERNET L. 17, 18 (2019) (data protection law); Sarah E. Light, Precautionary Federalism and the Sharing Economy, 66 EMORY L.J. 333 (2017) (ride sharing regulation); Troy A. Paredes, On the Decision to Regulate Hedge Funds: The SEC’s Regulatory Philosophy, Style, and Mission, 2008 U.ILL. L.REV. 975, 1006-10 (2006) (securities law); Catherine M. Sharkey, Direct-to-Consumer Genetic Testing: The FDA's Dual Role as Safety and Health Information Regulator, 68 DEPAUL L. REV. 343, 351 (2019) (genetic testing regulation); Cass Sunstein, Beyond Cheneyism and Snowdenism, 83 U.CHI.L.REV. 271 (2016) (national security law).
275 See Arie Trouwborst, Prevention, Precaution, Logic and Law - The Relationship between the Precautionary Principle and the Preventative Principle in International Law and Associated Questions, 2 ERASMUS L.REV. 105, 108 (2009).
276 See Hahn & Sunstein, supra note 270, at 1500-02.
277 See, e.g., Frank B. Cross, Paradoxical Perils of the Precautionary Principle, 53 WASH.& LEE L. REV. 851 (1996); Rosencranz et al., supra note 273, at 10130; Cass Sunstein, Beyond the Precautionary Principle, 151 U.PA.L.REV. 1003 (2003).
where the potential downsides of a failure to regulate could be catastrophic and irreversible.278
The other approach is a laissez-faire one, where regulation waits on the accumulation of significantly more data (and may never occur, absent strong evidence that regulation is needed).279 This is often the approach taken with new technology, usually justified by a desire not to unduly inhibit the development and spread of that technology.280 It also reflects a concern that regulatory choices are “sticky,” in that once made they may be difficult to change even if subsequent developments reveal they are problematic.281
There are of course many options between enacting a comprehensive regulatory scheme and doing nothing. These options include requiring the use of the best available technology to limit costs, trying to create some type of private market to sort out the relative costs and benefits of an activity, or requiring disclosures to aid private actors to make better judgments with respect to an activity.282 Choosing among those options is a complex process, but several factors tend to be considered. First and perhaps most importantly is the outer range of possible harm of either regulating or not regulating – that is, what, plausibly, is the worst case scenario either way, including whether it relates to public health and safety or only finances?283 For example and as noted above, supporters of a strong application of the precautionary approach in the environmental context rely on the potentially catastrophic health consequences and even existential threat level of the worst environmental outcomes absent such regulation.284 Another factor is how quickly relevant data may accumulate in comparison to how quickly the activity may spread or grow.285 For example, supporters of a laissez faire approach to new technology often emphasize that it takes time for new technology to gain adherents, and regulators can use the time during which new technology has limited effects to gather additional data before deciding if and how to regulate
278 See generally Daniel A. Farber, Uncertainty, 99 GEO.L.J. 901 (2011); Cass R.
Sunstein, Irreversible and Catastrophic, 91 CORNELL L.REV. 841 (2006).
279 See Mark D. Fenwick, Wulf A. Kaal & Erik P.M. Vermeulen, Regulation Tomorrow:
What Happens When Technology Is Faster than the Law, 6 AM.U.BUS.L.REV. 561, 582 (2017); Jeremy A. Carp, Autonomous Vehicles: Problems and Principles for Future Regulation, 4 U.PA.J.L.&PUB.AFF. 81, 114 (2018).
280 See, e.g., id.; Adam Thierer, Privacy Law’s Precautionary Principle Problem, 66 ME.L.REV. 467, 471 (2014).
281 See Carp, supra note 279, at 103-111 (limited ability of government branches to react and adapt quickly to new technologies).
282 See, e.g., Ackerman & Heinzerling, supra note 271, at 1581-83 (options in the environmental area).
283 See generally Sunstein, supra note 278.
284 See id. at 843-44.
285 See Fenwick et al., supra 279, at 573-74.
the new technology.286 A third factor is the ease with which harms that actually occur can be ameliorated after the fact, if regulations to prevent them from occurring are not in place.287 A fourth important factor is the extent to which there may be unexpected developments that could render any regulation enacted based on limited data ineffective or even detrimental.288
As these factors indicate, any decision regarding how to regulate in the face of uncertainty is context sensitive. The next two Sections therefore consider how these factors and related considerations apply in the context of charitable crowdfunding. The first considers crowdfunding for charities and then crowdfunding for one or more needy individuals.