Lessons from America
New Horizons in Law and Economics series
Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello
Chapter 3: Class Actions in the US Experience: An Economist’s Perception
JOBNAME: Ramello PAGE: 1 SESS: 7 OUTPUT: Tue Feb 28 11:47:52 2012 3. Class actions in the U.S. experience: an economist’s perception Frederic M. Scherer My role in this book, addressing important changes being considered actively in Europe, is akin to what Augustine of Hippo did: confessing and distilling lessons from the sins of my youth. Specifically, how do class action suits work from the perspective of an economist who has participated as an expert witness in several? My focus has been mainly on antitrust suits, but I will recognize the relevance of other types. 1. THE RATIONALE OF CLASS ACTION LITIGATION There are two main reasons for laws permitting class action litigation: (1) To do justice, that is, to compensate a nation’s citizens for harm that is done to them by powerful (usually industrial or medical) actors – e.g., through price fixing, selling defective and dangerous products or services, polluting the environment, polluting the information environment with false and misleading statements, and engaging in unwarranted discrimination – price or otherwise. To deter actions that might be illegal, but that might either escape the attention of law enforcement authorities, or be committed because the expectation of penalties administered by government agencies is insufficient, or to solve free-rider problems when no individual has a sufficient incentive to take corrective action that will benefit many fellow citizens. (2) Let us consider first the second of these explanations. Does deterrence from class action litigation actually work? In principle, the prospect of paying treble...
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