Lessons from America
New Horizons in Law and Economics series
Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello
Bruno Deffains and Eric Langlais 1. INTRODUCTION There is a general agreement concerning two effects associated with the formation of a class action (CA thereafter). On the one hand, CAs entail aggregation and amplification effects, which are both individually and socially desirable. In practice, CAs are used to consolidate a large number of individual claims. Intuitively, individual rationality implies that the claims under a threshold depending on the litigation cost are deterred from filing a lawsuit. Thus, to the extent that CAs entail a decrease in the litigation cost, these smaller claims are allowed to enter into the litigation process. Moreover, once both the larger and the smaller claim file a suit against the same tortfeasor, he receives additional incentives to undertake a socially efficient level of care. This is because CAs lead to an increase in the probability of trial, given that when some victims are deterred from filing an individual suit, the defendant’s probability of being sued is smaller than 1, and he does not have enough incentives to invest in the prevention activity. As a result, CAs also contribute to improving the preventive function of tort law. On the other hand, CAs generate scale economies. Filing a suit against a large tortfeasor may be quite complex and expensive for an individual: it implies time and resources that may be expensive as compared to the capacity of the tortfeasor – such that a small plaintiff may be discouraged from filing against a large tortfeasor. In contrast, a CA allows...
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