The Law and Economics of Class Actions in Europe
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The Law and Economics of Class Actions in Europe

Lessons from America

Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello

This well-documented book discusses the power and limitations of class actions with insights and analysis from a panel of distinguished scholars. It pays special attention to the introduction and the applicability of such a legal device in European civil law countries. The book offers a broad legal and economic investigation, drawing insights from US judicial experience and giving a rigorous discussion of both the philosophical and constitutional aspects and the economic mechanisms and incentives set up by class actions.
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Chapter 3: Class Actions in the US Experience: An Economist’s Perception

Frederic M. Scherer


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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